Salary vs. Pension : According to budget profile documents, spending on pensions has exceeded salaries since 2023-24. The Union Budget for 2025-26 estimates spending of ₹1.66 lakh crore on salaries and ₹2.77 lakh crore on pensions.
The central government’s budget for 2025-26 has revealed an interesting figure regarding pension and salary spending. According to the budget profile documents, pension spending has exceeded salaries since 2023-24. This trend is expected to continue in the 2025-26 budget. This could have an impact on the 8th Pay Commission.
1. Salary expenditure has been lower than pension expenditure since 2023-24
The Union Budget for 2025-26 estimates spending of ₹1.66 lakh crore on salaries and ₹2.77 lakh crore on pensions. Salary and pension allocations have remained largely unchanged over the past three years, but prior to 2023-24, salary expenditure significantly exceeded pension expenditure. Specifically, between 2022-23 and 2023-24, salary expenditure declined sharply by ₹1 lakh crore. This trend remains consistent even after 2023-24. This indicates a significant reduction in salary expenditure, which could be interpreted as a reduction in the number of government employees.
2. Total expenditure did not decrease
‘Salary’ and ‘Pension’ expenditure fall under establishment expenditure in the budget document. In addition to these two categories, establishment expenditure also includes a category called ‘Others’. According to comparative data available since 2017-18, total establishment expenditure has steadily increased, even though ‘Salary’ expenditure has declined sharply after 2022-23. This increase is primarily due to the increase in allocation for the ‘Others’ category.
3. Higher allocation for allowances over salaries
The “Expenditure Profile” section of the budget details payments to employees. These are divided into three major categories: salaries, allowances (excluding travel expenses), and travel expenses. The total allocation for this item shows no decline since 2017-18. Even as the number of government-employed employees remains between 3.2 million and 3.7 million between 2017-18 and 2025-26, the allocation for the “salary” head has stagnated, while the allocation for the “allowances” head has increased significantly since 2023-24. The reduction in allocation for the “salary” head in Budget Estimates 2023-24 is due to the fact that “salary” no longer includes allowances such as dearness allowance, house rent allowance, etc., which have been subsumed under the “allowances (excluding travel expenses)” head from 2023-24. This change indicates that total expenditure has not decreased, but rather has been reclassified into different categories.
4. What will be the impact on the 8th Pay Commission?
The government has announced the formation of the Eighth Pay Commission, which is likely to come into effect in 2027. The Pay Commission incorporates dearness allowance into the basic salary at the beginning of that period. Thereafter, dearness allowance increases annually in line with inflation.
