Salary Vs Pension: According to the budget profile documents, expenditure on pensions has exceeded salaries from 2023-24. The Union Budget for 2025-26 estimates spending of ₹1.66 lakh crore on salaries and ₹2.77 lakh crore on pensions.
An interesting figure has come out regarding the expenditure on pension and salary in the 2025-26 budget of the Central Government. According to the budget profile documents, the expenditure on pension has exceeded the salary from 2023-24. This trend is expected to continue in the 2025-26 budget as well. Its effect may be visible on the 8th Pay Commission.
1. Salary expenditure has been less than pension expenditure since 2023-24
The Union Budget 2025-26 estimates spending of ₹1.66 lakh crore on salaries and ₹2.77 lakh crore on pensions. The ‘salary’ and ‘pension’ allocations have remained almost unchanged over the last three years, but before 2023-24, salary expenditure was much higher than pensions. Notably, there is a sharp decline of ₹1 lakh crore in ‘salary’ expenditure between 2022-23 and 2023-24. The trend remains almost the same even after 2023-24. This indicates that there has been a sharp reduction in salary expenditure, from which it can be inferred that the number of government employees would also have come down.
2. Total expenditure did not decline
‘Salary’ and ‘Pension’ expenditure come under establishment expenditure in the budget document. Apart from these two categories, establishment expenditure also includes a category called ‘others’. According to comparative data available from 2017-18, total establishment expenditure has increased steadily, even though there is a sharp decline in ‘salary’ expenditure after 2022-23. This increase is mainly due to an increase in allocation for the ‘others’ category.
3. Higher allocation for allowances than salaries
The ‘Expenditure Profile’ part of the budget details the payments made to employees. These are divided into three major categories: salaries, allowances (excluding travel expenses) and travel expenses. There is no decline in the total allocation for this item since the year 2017-18. Even the number of employees employed by the government has remained between 32 to 37 lakh between 2017-18 and 2025-26.
However, the allocation for the ‘Salary’ head has stagnated, while the allocation for the ‘Allowances’ head has increased significantly from 2023-24. The allocation for the ‘Salary’ head has decreased in Budget Estimates 2023-24 because ‘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 the total expenditure has not decreased, but 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 will likely come into effect from 2027. The Pay Commission subsumes the dearness allowance into the basic pay, which is done at the beginning of the period. Thereafter, the dearness allowance keeps increasing every year in line with inflation.
This also means that the more time the government takes to implement the Pay Commission, the more the proportion of dearness allowance and other allowances will increase compared to the basic salary. This will directly affect the salary expenditure recorded in the budget.
When the recommendations of the Eighth Pay Commission come into effect, there will be a sudden and massive increase in the ‘salary’ head in the budget and the ‘salary’ head in the budget profile. This will be because a large amount of dearness allowance and other payments will again come back into the ‘salary’ or ‘wage’ category.
