The commission has recommended an average 23.55% increase in the salary, allowances and pension.
A total of 98 lakh employees -- 47 lakh central government employees and 52 lakh pensioners -- stand to benefit from the move.
The decision was taken in a Cabinet meeting chaired by Prime Minister Narendra Modi.
The salary hike will be effective from January 1, 2016
The revised higher pay is expected to boost the consumption demand and in turn growth.
The recommendations could turn out to be an opportunity for the PM to boost consumer market.
Around Rs 70,000 crore has been provisioned in the Union Budget 2016-17 for the implementation of the Seventh Pay Commission for government employees.
The pay commission headed by retired justice AK Mathur, had presented its 900-page report to Finance Minister Arun Jaitley in November 2015.
In January 2016, the government had set up an empowered committee of secretaries headed by cabinet secretary PK Sinha to examine the panel’s suggestions.
The minimum pay in government is recommended to be set at Rs 18,000 per month. This is more than double the present Rs 7,000.
The maximum pay is set at Rs 2,25,000 per month for apex scale and Rs 2,50,000 per month for cabinet secretary and others at the same pay level (as against the current Rs 90,000 per month).
In order to bring in greater transparency, the report has recommended replacing the present system of pay bands and grade pay with a new pay matrix.
Of the total financial impact of Rs 1,02,100 crore, the increase in pay would be Rs 39,100 crore, increase in allowances Rs 29,300 crore and increase in pension Rs 33,700 crore.
Also, Rs 73,650 crore of the outgo will be borne by the general budget and Rs 28,450 crore by the Railway Budget.
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