8th Pay Commission: Ambit Capital sees potential salary hikes of 30-34%; says these sectors will benefit

The 8th Pay Commission, which is expected to be implemented in FY27, may significantly boost government salaries and pensions by 30-34%, according to Ambit Capital. The report published by the brokerage on July 9 also said that with around 11.2 million central government employees and pensioners set to benefit from revised salaries and pensions, a large injection of disposable income is expected, providing a much-needed boost to consumption.
 
The brokerage believes that sectors like passenger vehicles, BFSI, FMCG, and QSR would benefit from the hikes. However, the magnitude of the boost will depend on how big the actual salary hikes are, based on the fitment factor used and when the implementation happens. Delay in implementation could reflect as higher arrear payments, which could mean a higher one-time boost to discretionary consumption.
 
In the lower- and upper-case scenarios, Ambit Capital expects 14% and 54% increase in the salary of government employees.
 
An analysis done by the brokerage showed that these hikes will need an additional Rs1.3 lakh crore fiscal space. “To manage this, the government may need to consider measures like capex compression, rationalising GST rates or increasing reliance on dividends from PSUs, particularly in light of slowing revenues and persistent committed spending,” Ambit Capital said.
 
Earlier the 7th Pay Commission (Jan’16-Dec’25) had implemented a modest salary hike of around 14% (lowest since 1970). “During the earlier Pay Commissions (6th & 7th), the government had undertaken capex compression to create space for the higher wage bill (revex). With growth in tax revenues (especially income tax) tapering, the government may have to nudge PSUs to undertake its capex targets, continue with its reliance on PSU and RBI dividends and undertake GST rationalisation,” the brokerage said in the report.
 
With the Unified Pension Scheme implemented from FY26, Ambit Capital added that the government’s contribution to pension fund (as percentage of employee salary) increased to 18.5% from 14% earlier under NPS. Of this, 8.5% is under the government’s discretion as to where to park the fund.
“If it decides to follow global norms of parking around 45% in equities, flow into equity markets could increase from Rs 24,500 crore to Rs 46,500 crore (7.7% of net domestic flows in FY25),” Ambit Capital said.