The rollout of increased salaries for government employees under the 8th Pay Commission would lift disposable income, and help firms in the consumer sector post stronger earnings, financial services firm UBS said in a note.

The 8th Pay Commission, along with the lower income tax announced in the Union Budget 2025, “could spur a demand revival in many categories and an extended earnings growth phase”, stated the note released on Monday.

With effect from April 1, income tax is nil for those earning up to Rs 12 lakh, and the subsequent tax rates have been lowered for those in the higher income bracket. The tax relief is expected to have an immediate impact on consumption.

However, the 8th Pay Commission may not come into effect in this fiscal. While the government has approved its formation, the panel is yet to be formally constituted. After its formation, the pay commission will hold deliberations with various stakeholders before recommending the fitment factor and other modalities for the revision of salaries and pensions.

The last pay panel, which was the 7th Pay Commission, had submitted its report around 18 months after its formation. It had recommended a fitment factor of 2.57, which raised the minimum salary from Rs 7,000 to Rs 18,000.

According to UBS, “income stimulus (lower taxes) and the Eighth Pay Commission are likely to help drive a phase of stronger earnings beyond FY26”.

The two moves should stimulate a demand cycle too by “lifting middle-class disposable income and spurring consumption across consumer categories, such as packaged foods and other discretionary purchases”, the note added.

UBS further stated that the 8th Pay Commission’s implementation is “likely to involve significant consumption stimulus”, as around “40% of the formal sector employment is in the public sector and our India economist believes any wage increase should indirectly boost wages in the real economy”.

Last month, Goldman Sachs said in a note that the 8th Pay Commission could be implemented from calendar year 2026 or 2027. With its rollout, the median salary of Union government employees can rise in the range of Rs 14,000 to Rs 19,000 per month, it stated.

. Read more on Business by NDTV Profit.8th Pay Commission’s implementation, along with the lowering of income taxes, could spur a demand revival in many categories, UBS said.  Read MoreBusiness, Nation, Economy & Finance, Notifications 

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