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NEW DELHI: The Seventh Pay Commission on Thursday recommended an increase in pay and allowances of 23.55%, a 24% rise in pensions and one-rank-one-pension for central government employees and paramilitary personnel. These changes are estimated to cost an extra Rs 1.02 lakh crore to the government in 2016-17.The recommendations of the panel, headed by AK Mathur, a retired judge of the Supreme Court, are expected to benefit 47 lakh central government employees and 52 lakh pensioners. They will also benefit employees of autonomous bodies, universities and public sector units. The implementation date is from January 1, 2016, which means there will be no arrears for the government to pay.Government to put more cash in staff purseThe minimum pay recommended is Rs 18,000 while the highest pay has been set at Rs 2.5 lakh for the cabinet secretary and officers of the same rank like the chiefs of army, navy and air force and the Comptroller and Auditor General.The panel has recommended introduction of a health insurance scheme for central government employees and pensioners to replace the current Central Government Health Scheme (CGHS).The commission has also recommended introduction of performance-related pay (PRP) for all categories of central government employees, based on quality results framework documents, reformed annual performance appraisal reports and some other broad guidelines. The commission has also recommended PRP should subsume the existing bonus schemes.The overall increase of 23.55% includes a 16% increase in basic pay and a 63% rise in allowances. The raise in pensions would be 24%. The recommended annual increment remains at 3%.Paramilitary forces too get OROPOf the total financial impact of Rs 1.02 lakh crore in 2016-17, Rs 73,650 crore will be borne by the general budget and Rs 28,450 crore by the Railway budget. A panel headed by the expenditure secretary will examine the report before the recommendations are implemented.The ceiling on gratuity has been raised from the existing Rs 10 lakh to Rs 20 lakh and will be raised by 25% whenever the dearness allowance rises by 50%.The government had set up the Commission in 2014 giving it 18 months to submit its report. A Pay Commission is set up every 10 years for central government employees but the outgoing UPA government had announced the setting up of the panel which the NDA accepted. The 6th Pay Commission had in 2008 recommended pay raises ranging from 40% to 60%, which had put an enormous burden on government finances.The recommendations of pay panels trigger demand for pay increases across the public sector including staff in states and puts a burden on finances of state and central governments. On the other hand, it also acts as a major boost for demand in the economy by giving a sizeable chunk of the population extra disposable income.Experts said the implementation of the recommendations of the panel will help push up demand but may pressure government finances as in the past.Gratuity & IIT courses to draw youth to forcesFinance ministry sources said there won’t be much of a problem in the current fiscal year given that the recommendations will apply only in the last quarter.They said it will put some pressure on the fisc next year and will eat into some of the funds that would have been allocated for development expenditure. It will now go towards meeting the higher wage bill. But the burden will ease from the second year onwards.“While the centre has the wherewithal to deal with the burden, the pressure will be on the states. As for recommendations such as CGHS, the financial implications would be weighed before a decision is taken,” sources said.Senior finance ministry officials were confident of meeting the extra expenditure. “There are challenges, we will face that... It's not going to impact this fiscal. By the time it is implemented, it goes into next financial year and our growth prospects are good, our economy is pretty robust, we will handle this,” Finance Secretary Ratan Watal told reporters.“This will provided much needed support to the demand in the next fiscal year. And if monsoon also remain normal it will create conditions for revival of private corporate investments,” said D. K. Joshi, chief economist at Crisil Ratings Agency“The government will also have to shore up revenues to stay within the fiscal glide path,” he said. The government aims to rein in the fiscal deficit at 3.9% of GDP in the current fiscal year and has committed to fiscal consolidation.