Seventh Pay Commission Report:Overview of Allowance Chapter 8.2
8.2.1 The VII CPC has a specific item in its Terms of Reference that reads as follows: To review the variety of existing allowances presently available to employees in addition to pay and suggest their rationalization and simplification, with a view to ensuring that the pay structure is so designed as to take these into account. Consequent to the above, the Commission wrote to all the ministries/departments requesting them to detail the variety of allowances payable to their employees. All the allowances reported to the Commission have been dealt with in this chapter.
8.2.2 There is no universally accepted definition of an allowance. However, it is widely recognized as a sum of money paid to the employee for a specific purpose. It is also accepted that the employer may put restrictions in place to ensure that the money is spent only for the intended purpose. As per the Standard of Financial Propriety, “the amount of allowances granted to meet expenditure of a particular type should be so regulated that the allowances are not on the whole a source of profit to the recipients.”
8.2.3 In the context of civil servants in India, an allowance is paid over and above the Basic Pay of the employee, either as a percentage of the Basic Pay, or as a specified amount. In the case of the latter the amount usually varies with the employee’s level or status, with Children Education Allowance being the notable exception for which the absolute amount is the same across all ranks. Barring a few exceptions, allowances do not normally count for calculation of other allowances and pensionary benefits. Here it is pertinent to mention that there exist another set of payments also classified as “allowances” that are in the nature of administrative expenditure, such as Band Allowance, Recruiting Allowance, etc. These are granted to the concerned unit and not to an individual. The Commission is of the view that such “allowances”should henceforth be referred to simply as expense or expenditure andthe word “allowance” should be used only if it is paid to an individual.
8.2.4 Some general observations of the Commission regarding allowances are as under:
The number of allowances paid to government employees in India is quite large, and there are demands for even more allowances. The trend worldwide, however, is otherwise–to include most of the additional items of remuneration as part of the Basic Pay and minimize the number of allowances. The Commission, in its recommendations, has tried to reconcile both the points of view, keeping the unique conditions of our country in mind
The entire range of allowances is administered in broadly four ways:
a. Fully DA-indexed–Allowances that are in the nature of fixed amounts, but the amount is fully indexed to Dearness Allowance(DA), e.g. Transport Allowance
b. Partially or Semi DA-indexed–Allowances that are in the nature of fixed amounts, but the amount increases by 25 percent each time DA rises by 50 percent, e.g. Field Area Allowance, Siachen Allowance.
c. No DA-indexation–Allowances that are in the nature of fixed amounts, but the amount does not change with DA, e.g. Reward for Meritorious Service.
d. Percentage based–Allowances that are paid as a percentage of Basic Pay, e.g. House Rent Allowance, and in some cases as a percentage of Basic Pay+DA, e.g. Special Security Allowance to the staff of SPG, NSG and NIA.
There are some allowances for which the nomenclature as well as the reason for which they are being paid is similar across ministries/departments. Yet, the rates vary. One such example is Night Duty Allowance. The Commission has tried to ensure parity for such allowances.
There are quite a few allowances that are referred to simply as “Special Allowance.” We have tried to name them appropriately so that they can be easily distinguished and the context can be clearly brought out. An example is the “Special Allowance” paid to members of the expedition team visiting Antarctica. We have named it “Antarctica Allowance.”
In the present system of accounting, Pay and Allowances are clubbed and it is difficult to bifurcate them. Hence, it is recommended that a separate object head for budgeting and accounting should be used to record the expenditure on allowances.
Most of the allowances have rules/regulations attached with them for their governance. Many of these rules/regulations have evolved over a period of time and are now by and large stabilized. Given the time frame of the Commission, it is not possible to examine each condition associated with every allowance. However, wherever it has been brought to the notice of the Commission in its meeting with the stakeholders, we have brought in necessary changes aiming to enhance the ease of implementation. Accordingly, unless otherwise mentioned, the scope, rules/regulations and set of conditions governing the grant of an allowance shall remain unaltered.
8.2.5 The general approach adopted by the Commission is as under:
1. We have considered all allowances reported to us, in this chapter. Any allowance, not mentioned here (and hence not reported to the Commission), shall cease to exist immediately. In case there is any demand or requirement for continuation of an existing allowance which has not been deliberated upon or covered in this report, it should be re-notified by the ministry concerned after obtaining due approval of Ministry of Finance and should be put in the public domain.
2. We have categorized all reported allowances under functional heads : Click Here
3. Every allowance has been examined and analysed using the following approach:
a. Need for continuation: The genesis of every allowance has been studied with a view to identify the precise reason and basis for payment of that allowance. Over a period of time many processes and work situations in the government have evolved and undergone changes so as to render the need for certain allowances infructuous. Based on the analysis, an assessment of the need for continuation of each allowance has been made.
b. Coverage: For such allowances as are being recommended for continuation, the set of people who are presently covered by the allowance has been examined to see if the same is appropriate.
c. Rationalisation: Again, for those allowances that are being recommended for continuation, the
following set of issues has been gone into:
i. Is the present rate appropriate?
ii. Can the allowance be clubbed with any other similar allowance?
iii. Can the allowance be rationalized?
4. For most of the allowances that have been retained, we have sought to provide a raise that is commensurate with the rise in DA. Accordingly, allowances that are in the nature of a fixed amount but not DA indexed have generally been raised by a factor of 2.25. Allowances that are in the nature of a fixed amount but are partially indexed to DA have generally been raised by a factor of 1.5. Allowances that are in the nature of a fixed amount but fully indexed to DA have not been given any raise. Regarding percentage based allowances, having regard to the increase in the pay structure (and consequently the Basic Pay) as a result of the recommendations of this Commission, and keeping in mind the raise granted to slab-based allowances, the quantum of percentage based allowances has been rationalized by a factor of 0.8.
5. There are, however, exceptions to the above approach which have been clearly brought out while discussing the allowances individually.
6. The overall aim is transparency, simplification and rationalization of the entire structure of allowances, keeping historical parities, present realities and the proposed pay structure in mind.
Summary of Recommendations
8.2.6 The Commission has recommended abolishing 52 allowances altogether. Another 36 allowances have been abolished as separate identities, but subsumed either in an existing allowance or in newly proposed allowances. Allowances relating to Risk and Hardship will be governed by the proposed Risk and Hardship Matrix.