8th Pay Panel: Fiscal Prudence or Fiscal Myopia?

The Union Cabinet approved the Terms of Reference (ToR) of the 8th Central Pay Commission (CPC) on October 28, 2025. The announcement is framed as a sign of “continuity and responsibility.” Chaired by Justice Ranjana Prakash Desai, the Commission is expected to submit its recommendations within 18 months, paving the way for implementation from January 1, 2026. For the country’s 50 lakh Central government employees and 68 lakh pensioners, this seems like long-awaited good news.

Yet a closer look at the ToR reveals that this is less of a reform and more of a reiteration, yet another round in a familiar cycle of fiscal caution dressed up as administrative modernisation. What appears as progress, on inspection, reads more like repetition.

The rhetoric of prudence is not neutral; it is a political vocabulary that sets boundaries on what counts as “responsible governance.” It signals not ambition but anxiety, an insistence on balance sheets over public welfare.

The 8th CPC’s ToR echo their predecessors almost word for word: the Commission must keep in mind “the economic conditions of the country and the need for fiscal prudence,” “the requirement of adequate resources for developmental expenditure and welfare measures,” and “the likely impact on State finances.”

This is the grammar of restraint. It tells the Commission what not to do but fails to say what must be done. Like the 6th and 7th CPCs before it, the 8th CPC is instructed to raise pay without burdening the exchequer, reform pensions without increasing costs, and modernise administration without expanding public employment.

If anything is new, it is the intensification of this fiscal orthodoxy. The ToR explicitly mention the “unfunded cost of non-contributory pension schemes” and the need to examine “emoluments and working conditions in CPSEs and the private sector.” In short, public-sector pay must remain subordinate to market logic and fiscal ceilings.

This continuity is not accidental. It is reflective of a deeper ideological project that treats public-sector salaries as a “cost centre” rather than a pillar of State capacity. The language of fiscal prudence conceals a class choice.

While real wages stagnate for government employees, India’s top 1% population  controls over 22% of national income and reaps the benefits of tax concessions and financial deregulation. The wage share in GDP (gross domestic product) has declined steadily, weakening household demand, a pattern Polish economist Michał Kalecki warned against decades ago. As he argued, suppressing wages in the name of prudence undermines effective demand and, ultimately, private investment itself.

Public sector pay also performs a vital benchmark function. It sets the tone for wage negotiations in both the organised private sector and the vast informal economy. When government wages are restrained, the ripple effects travel downward, employers in the private and unorganised sectors face no pressure to raise pay, and the floor for minimum compensation across the labour market effectively falls. Thus, fiscal conservatism in the public domain becomes wage suppression in the entire economy.

The insistence on restraint for public wages coexists with generosity for capital, a contradiction that redistributes upward. As French economist Thomas Piketty reminds us, unchecked inequality corrodes not only consumption but democracy itself.

Fiscal prudence that was meant to signal discipline, has instead come to symbolise inequality; the burden of restraint falls squarely on labour, not on capital.

What the ToR Fails to Say

Nowhere in the 8th CPC’s framework do we find words such as equity, inclusion or representation. There is no mandate to examine gender pay gaps, caste-based disparities, or the erosion of benefits for employees on contract.

This silence is political. It reflects a technocratic worldview in which public wages are adjusted through spreadsheets rather than debated as a matter of justice. Even as the Commission is asked to consider private-sector norms, it is not asked to evaluate the biases that define those norms; the gendered undervaluation of care work, the uncertainties of gig employment, and the widening rural–urban wage divide.

Thus, what appears as technocratic neutrality is in fact political blindness, a refusal to see justice as part of fiscal policy. By narrowing the lens to mere cost-calculation, the ToR strips the pay-revision process of its ethical and social content.

By continuously benchmarking government pay to corporate practices, the State risks hollowing out its own moral legitimacy. A teacher, a nurse, or a field officer is not a profit-maximiser; they are the instruments through which the republic fulfils its social contract. When their labour is devalued, the state itself diminishes.

When a teacher or nurse is treated as a liability, the moral foundation of the welfare state begins to erode. The 8th CPC’s cautious tone betrays a deeper insecurity, a government unwilling to invest in its own workforce even as it boasts of record tax collections and digital-era efficiency. The contradiction is glaring: fiscal prudence at the bottom, fiscal indulgence at the top. This erosion of moral purpose signals a weakening of the very idea of the State as guardian of collective well-being.

The Union Cabinet’s approval of the ToR may give the illusion of administrative progress, but the real question remains: what kind of State is India building? Is it a lean, technocratic State that celebrates savings on salaries as success, or a developmental one that treats fair wages and pensions as investments in social capability? It should be remembered that wage-led demand is not merely equitable, it is macro-economically essential. Fiscal prudence that ignores equity is self-defeating; it starves the very economy it seeks to protect.

From Fiscal Prudence to Fiscal Justice

The formation of the 8th CPC could have been an opportunity to rethink how India values work within the public sphere. Instead, it reaffirms a narrow fiscal logic that treats the State’s own employees as a cost to be contained rather than citizens to be empowered.

A truly progressive Pay Commission should ask different questions: How can wages reflect regional cost-of-living variations? How can parity be ensured across gender and social categories? How can pay revisions enhance motivation and retention in essential services such as education and health? Until such questions enter the conversation, fiscal prudence will remain fiscal myopia, a short-sighted policy that mistakes control for competence and restraint for reform.

Shirin Akhter is Associate Professor at Zakir Husain Delhi College, University of Delhi. The views are personal.

The Union Cabinet approved the Terms of Reference (ToR) of the 8th Central Pay Commission (CPC) on October 28, 2025. The announcement is framed as a sign of “continuity and responsibility.” Chaired by Justice Ranjana Prakash Desai, the Commission is expected to submit its recommendations within 18 months, paving the way for implementation from January 1, 2026. For the country’s 50 lakh Central government employees and 68 lakh pensioners, this seems like long-awaited good news.

Yet a closer look at the ToR reveals that this is less of a reform and more of a reiteration, yet another round in a familiar cycle of fiscal caution dressed up as administrative modernisation. What appears as progress, on inspection, reads more like repetition.

The rhetoric of prudence is not neutral; it is a political vocabulary that sets boundaries on what counts as “responsible governance.” It signals not ambition but anxiety, an insistence on balance sheets over public welfare.

The 8th CPC’s ToR echo their predecessors almost word for word: the Commission must keep in mind “the economic conditions of the country and the need for fiscal prudence,” “the requirement of adequate resources for developmental expenditure and welfare measures,” and “the likely impact on State finances.”

This is the grammar of restraint. It tells the Commission what not to do but fails to say what must be done. Like the 6th and 7th CPCs before it, the 8th CPC is instructed to raise pay without burdening the exchequer, reform pensions without increasing costs, and modernise administration without expanding public employment.

If anything is new, it is the intensification of this fiscal orthodoxy. The ToR explicitly mention the “unfunded cost of non-contributory pension schemes” and the need to examine “emoluments and working conditions in CPSEs and the private sector.” In short, public-sector pay must remain subordinate to market logic and fiscal ceilings.

This continuity is not accidental. It is reflective of a deeper ideological project that treats public-sector salaries as a “cost centre” rather than a pillar of State capacity. The language of fiscal prudence conceals a class choice.

While real wages stagnate for government employees, India’s top 1% population  controls over 22% of national income and reaps the benefits of tax concessions and financial deregulation. The wage share in GDP (gross domestic product) has declined steadily, weakening household demand, a pattern Polish economist Michał Kalecki warned against decades ago. As he argued, suppressing wages in the name of prudence undermines effective demand and, ultimately, private investment itself.

Public sector pay also performs a vital benchmark function. It sets the tone for wage negotiations in both the organised private sector and the vast informal economy. When government wages are restrained, the ripple effects travel downward, employers in the private and unorganised sectors face no pressure to raise pay, and the floor for minimum compensation across the labour market effectively falls. Thus, fiscal conservatism in the public domain becomes wage suppression in the entire economy.

The insistence on restraint for public wages coexists with generosity for capital, a contradiction that redistributes upward. As French economist Thomas Piketty reminds us, unchecked inequality corrodes not only consumption but democracy itself.

Fiscal prudence that was meant to signal discipline, has instead come to symbolise inequality; the burden of restraint falls squarely on labour, not on capital.

What the ToR Fails to Say

Nowhere in the 8th CPC’s framework do we find words such as equity, inclusion or representation. There is no mandate to examine gender pay gaps, caste-based disparities, or the erosion of benefits for employees on contract.

This silence is political. It reflects a technocratic worldview in which public wages are adjusted through spreadsheets rather than debated as a matter of justice. Even as the Commission is asked to consider private-sector norms, it is not asked to evaluate the biases that define those norms; the gendered undervaluation of care work, the uncertainties of gig employment, and the widening rural–urban wage divide.

Thus, what appears as technocratic neutrality is in fact political blindness, a refusal to see justice as part of fiscal policy. By narrowing the lens to mere cost-calculation, the ToR strips the pay-revision process of its ethical and social content.

By continuously benchmarking government pay to corporate practices, the State risks hollowing out its own moral legitimacy. A teacher, a nurse, or a field officer is not a profit-maximiser; they are the instruments through which the republic fulfils its social contract. When their labour is devalued, the state itself diminishes.

When a teacher or nurse is treated as a liability, the moral foundation of the welfare state begins to erode. The 8th CPC’s cautious tone betrays a deeper insecurity, a government unwilling to invest in its own workforce even as it boasts of record tax collections and digital-era efficiency. The contradiction is glaring: fiscal prudence at the bottom, fiscal indulgence at the top. This erosion of moral purpose signals a weakening of the very idea of the State as guardian of collective well-being.

The Union Cabinet’s approval of the ToR may give the illusion of administrative progress, but the real question remains: what kind of State is India building? Is it a lean, technocratic State that celebrates savings on salaries as success, or a developmental one that treats fair wages and pensions as investments in social capability? It should be remembered that wage-led demand is not merely equitable, it is macro-economically essential. Fiscal prudence that ignores equity is self-defeating; it starves the very economy it seeks to protect.

From Fiscal Prudence to Fiscal Justice

The formation of the 8th CPC could have been an opportunity to rethink how India values work within the public sphere. Instead, it reaffirms a narrow fiscal logic that treats the State’s own employees as a cost to be contained rather than citizens to be empowered.

A truly progressive Pay Commission should ask different questions: How can wages reflect regional cost-of-living variations? How can parity be ensured across gender and social categories? How can pay revisions enhance motivation and retention in essential services such as education and health? Until such questions enter the conversation, fiscal prudence will remain fiscal myopia, a short-sighted policy that mistakes control for competence and restraint for reform.

Shirin Akhter is Associate Professor at Zakir Husain Delhi College, University of Delhi. The views are personal.