The wage hike, after merging existing allowances with the basic salary, will range from 18 to 25% depending on the slab, sources told The Indian Express. The net impact will be 20%, they added.

Compared to the 200% hike recommended by the Fifth Pay Commission, the increase this time has been deliberately kept at a moderate level as the inflationary impact is anyways being neutralised since July 1996 through revisions in the Dearness Allowance.

These revisions, twice every year from January 1 and July 1, are in line with the formula advocated by the Fifth Pay Commission. A Central government employee’s remuneration includes a basic salary, a 50% dearness pay merged with the basic and a 47% dearness allowance of the total.

Excluding the arrears that would accrue to the 55 lakh employees, the annual impact of the new wage jump is estimated at Rs 11,000 crore. The new scale will be effective from January 2006 but half of it could be compulsorily put away under the GPF to bring down the instant payout.

That is because although Finance Minister P Chidambaram provided for Rs 26,657 crore or 0.5% of the fiscal deficit as headroom for pay revision and arrears, the margin got reduced due to a supplementary demand for Rs 10,000 crore for the loan waiver of farmers.