India's public sector pay bill higher than official figures suggest, experts say
As India prepares for the Eighth Central Pay Commission, a crucial question remains unanswered: how much does the government actually spend on employee compensation? Official figures put the central government's pay and pension expenditure at about 2.4% of GDP between 2015-16 and 2020-21, with states spending 2.5% of GDP in 2022-23. However, experts argue these numbers significantly understate the true cost.
The gap arises because India's official compensation statistics primarily cover permanent employees, ignoring a large and growing workforce of contract workers, scheme-based employees, and staff in autonomous institutions who are paid outside standard payroll systems.
Contract workers, engaged in perennial functions such as maintenance, data entry, and security, now number up to 76% of the permanent workforce in central government, up from roughly half a decade earlier. Paid at minimum wage levels, these workers cost the central government at least Rs 14,000 crore annually—none of which appears under the salary head in official accounts.
Similarly, scheme workers like ASHA health workers (nearly 10 lakh) and cook-cum-helpers under the PM-POSHAN mid-day meal scheme (about 37 lakh) are classified as volunteers receiving honoraria, not salaries. Under international accounting standards, such payments qualify as compensation. Yet they are omitted from headline figures.
Autonomous institutions—including AIIMS, IITs, IIMs, and regulatory bodies—further distort the picture. Grants-in-aid for salaries to these bodies amounted to about Rs 60,000 crore in 2024-25. State municipal corporations add another Rs 50,000 crore in pay and pension. These sums are recorded in separate budget heads but are not consolidated with overall compensation data.
The International Monetary Fund's Government Finance Statistics Manual defines compensation as any recurring payment in an employer-employee relationship, regardless of its label. By this definition, India's true public sector compensation bill is substantially higher than commonly reported, experts say. As the Eighth Pay Commission deliberates, accounting for these hidden costs will be critical for accurate fiscal planning.
