NEW DELHI: In a heart-warming gesture to lakhs of Central Government employees and pensioners, the Union Cabinet on Thursday gave its nod for setting up the Sixth Pay Commission with an 18-month tenure to submit its recommendations on wage revision.

Implementation of the recommendations of the yet-to-be-constituted three-member Commission, to be announced by Prime Minister Manmohan Singh in the next few days, is likely to cast an additional annual burden of about Rs. 20,000 crore on the Central exchequer, considering that the financial impact of the previous Commission was Rs. 17,000 crore.

Announcing the Cabinet's decision entailing far-reaching financial and political implications in view of the percolation effect on the States, Union Information and Broadcasting Minister Priya Ranjan Dasmunsi told newspersons that the Commission, like the previous five, would examine issues such as pay and allowances, service conditions, promotion policies, retirement benefits, inflation and standard of living of the Central staff.

"The Commission will also examine the desirability, need and quantum of interim relief, if any," he said.

Mr. Dasmunsi said the precise terms of reference of the Commission would be announced at the time of its constitution. It would comprise a Chairman in the rank of Minister of State, one part-time Member and one Member-Secretary in the rank of Secretary or Additional Secretary at the Centre.

The Minister pointed out that the decision to set up the Commission — five months after the Prime Minister's announcement — was taken keeping in mind the "long-standing demand of the employees and the opinion of State Governments" although the Twelfth Finance Commission advised doing so on a regular basis.

Of the 16 States that responded to the UPA Government's queries on the proposal, only two BJP-ruled States — Madhya Pradesh and Gujarat — were against the move, while Karnataka, Orissa, Jammu and Kashmir, Assam, Nagaland, Tripura and Manipur sought financial assistance for implementing the recommendations, said Mr. Dasmunshi. Mr. Dasmunsi said the views of the State Governments were sought primarily because once a decision was taken on salary revision for the Central staff, the States were expected to face similar demands from their employees.

The Twelfth Finance Commission, headed by former Reserve Bank of India Governor, C. Rangarajan, disfavoured setting up of such pay panels at regular intervals as the Fifth Pay Commission's report, when implemented in 1996-97, plunged most of the States in serious financial crisis.

The burden was so heavy that the then Finance Minister had no other option but to come out with a financial bailout package.

Even the Economic Survey 2005-06 had advised the Centre to remain vigilant and exercise caution in this regard. It noted that on the implementation of the Fifth Pay Commission's recommendations the general fiscal deficit rose each year to touch a peak of 9.9 per cent in 2001-02. The Government needs to "avoid a repetition of a similar deterioration [of fiscal situation] in the medium term," the Survey said.

However, the Prime Minister had commented that the Pay Commission issue would not hurt the fiscal situation.

The Finance Ministry had also assured that efforts would be made to see that the increased wage burden was reasonable, appropriate and affordable and in consonance with modern requirements.

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