The Central Pay Commission (Part- V )

The Central Pay Commission ( part- V )

By Lokanath Mishra, the Chief Adviser, the all India pensioners association of CBIC and the all India CGHS beneficiaries association of CBIC:
How NFFU Widened Gaps in Status, Pay Progression, and Pension Benefits

Background and Context

The introduction of Non-Functional Financial Upgradation (NFFU) through the Department of Personnel and Training (DoPT) Office Memorandum dated 24 April 2009 was originally intended to address stagnation in Group-A Central Services, where officers often faced delays in promotions due to the limited number of senior posts. Under NFFU, if an officer of the Indian Administrative Service (IAS) was promoted to a particular grade, officers belonging to other Group-A services would automatically receive financial upgradation to that grade after a fixed time lag of two years, irrespective of actual vacancy or promotion.

While the scheme’s stated purpose was to maintain parity among Group-A officers, in practice, it institutionalised an asymmetric advantage for IAS and certain allied services, leaving the vast majority of other services and employees outside its ambit.

1. Institutionalisation of Unequal Pay Progression

Under NFFU, officers of the IAS and select Group-A Central Services (IFS, IPS, IRS, etc.) receive automatic pay level upgrades every five years (PB-3 to PB-4 and up to HAG scale) without corresponding functional promotions.
This mechanism resulted in:
• Accelerated notional pay progression leading to higher basic pay levels for the purpose of pension fixation.
• De facto seniority and status enhancement in official and inter-service interactions, as their pay band reflected a higher position than their actual rank.
• Automatic pension advantage, since pension is calculated as 50% of the last drawn (or notional) pay.

In contrast, non-NFFU services — including Central Secretariat Service (CSS), Central Government Group-B and C cadres, and various technical and scientific services — were denied equivalent provisions.

The resulting structural inequity is evident in the 7th Pay Commission’s Pay Matrix, where NFFU-eligible services progress steadily to Pay Level 14 or 15, while non-NFFU officers stagnate at Levels 11–12 for decades.

2. Judicial Observations and Legal Challenges

Multiple court cases have addressed the discriminatory effects of NFFU:
• The Central Administrative Tribunal (CAT), Principal Bench, in OA No. 213/2014 — All India Customs and Central Excise Gazetted Officers Association vs Union of India, observed that denial of NFFU benefits to comparable cadres violates Article 14 (equality before law).
• The Delhi High Court in Union of India vs R.K. Sharma (2016) held that financial upgradation mechanisms must operate uniformly and cannot favour one service exclusively.
• In State of Punjab vs Jagjit Singh (2016) 14 SCC 267, the Supreme Court reaffirmed the principle of “equal pay for equal work”, holding that any distinction in pay among employees performing similar duties is unconstitutional.

Despite these rulings, the discriminatory framework of NFFU continues, protected by selective implementation and bureaucratic influence.

3. Impact on Pension Parity and Career Hierarchy

NFFU has had cascading effects on pension fixation and career hierarchy:
• Pension disparity: Since pension is calculated as 50% of the last drawn pay, NFFU beneficiaries automatically receive higher pensions. Officers of identical rank and seniority in non-NFFU services retire with lower pensions despite performing comparable or identical responsibilities.
• Career stagnation: Non-NFFU cadres often face promotion delays of 12–15 years, while NFFU officers achieve time-bound financial progression every five years.
• Erosion of inter-service equity: NFFU has effectively converted financial upgradation into a status symbol, diminishing morale and creating a psychological divide within the civil service.

The 7th CPC Report (2015, Chapter 7.3) itself noted that “the benefits of NFFU have not been extended uniformly” and recommended a review, yet the issue remains unresolved.

4. Comparative Analysis: International Practices

Globally, civil service pay systems aim to balance career progression with functional responsibility, not automatic financial elevation.

(a) United Kingdom (UK Civil Service)
• The UK follows a “banded promotion and competency-based progression” model. Pay progression is linked to performance evaluations and availability of higher posts, not automatic upgradation.
• Pension benefits are based on career average earnings under the Civil Service Pension Scheme (Alpha Scheme, 2015) — discouraging artificial inflation of pay grades before retirement.

(b) United States (Federal Government)
• The General Schedule (GS) pay structure operates on step increases based on merit and years of service, but promotion to higher grades requires actual appointment and responsibilities.
• There is no equivalent of NFFU; “time-in-grade” rules ensure fairness across departments while maintaining control over pension liability.

(c) France and Germany
• Both use a rank-based career system where promotions depend on seniority, examinations, and professional evaluation. Financial benefits are strictly tied to functional advancement and public service exams.
• Automatic financial upgradation, without change in functional role, is not practiced as it distorts parity and fiscal balance.

Thus, India’s NFFU mechanism is unique and distortionary—a measure that enhances inequality rather than efficiency.

5. Fiscal and Administrative Consequences

NFFU has significantly increased the government’s pension liability without proportionate improvement in productivity or accountability.
The Comptroller and Auditor General (CAG) Report on Union Government Accounts (2019) noted that “non-functional upgradations have created long-term fiscal pressures” due to inflated pay and pension fixation, particularly in the All India Services.

Moreover, it has distorted inter-service harmony, with several employee associations (CBIC, CSS, Railways, Postal Services, etc.) repeatedly petitioning for parity. Thousands of pending court cases stem directly from NFFU-related disparities.

6. Recommended Corrective Measures

To restore fairness and inter-service equity, the 8th Pay Commission should undertake the following reforms:
1. Replace NFFU with a Universal Time-Bound Promotion Framework
• Introduce actual promotions every five years, subject to satisfactory performance, across all cadres and departments.
• This aligns with global best practices that reward competence and seniority through real functional advancement.
2. Clarify the Distinction Between NFGP and MACP
• Upgradation under Non-Functional Grade Promotion (NFGP) should not be counted as an upgradation under MACP (Modified Assured Career Progression).
• This interpretation has already been upheld by several CAT judgments (e.g., OA 2124/2014, CBIC Officers Association vs UOI).
3. Uniform Career Progression Policy
• Establish a six stage time-bound promotion system (after 5, 10, 15 , 20, 25, 30 years) applicable to all services to eliminate intra- and inter-departmental disparities. MACP schemes are to be replaced by time bound promotional schemes in each and every department.
4. Pension Harmonisation
• Ensure parity in pension fixation by aligning pension levels with actual responsibility held, not merely notional pay granted through NFFU.
5. Independent Review Committee
• Constitute a High-Level Equity Committee under the DoPT or the 8th CPC to evaluate the continuation or abolition of NFFU and recommend parity mechanisms across all Central Government services.

7. Conclusion

The NFFU mechanism, while originally introduced to reduce stagnation, has instead entrenched inequality in India’s civil service. It has created two distinct classes of officers—one enjoying automatic financial elevation and another languishing without promotion for decades. This disparity extends into pension entitlements, status hierarchy, and career morale, violating the principles of equal opportunity and fair remuneration under Articles 14 and 39(d) of the Constitution.

To correct this, the 8th Central Pay Commission must:
• Phase out NFFU in its current form;
• Introduce time-bound functional promotions for all services;
• Ensure that pay progression reflects real responsibilities, not notional parity; and
• Restore equity, transparency, and motivation across the Central Government workforce.

Only such structural reform can align India’s civil service pay system with global standards of fairness and fiscal responsibility.

( to be continued)

The Central Pay Commission (Part III)

The Central Pay Commission (Part II)

8th Pay Commission: A Step Toward Economic Balance and Pensioner Welfare