The Union Cabinet has approved a higher increase in basic pay than the nearly 15 per cent recommended by the 7th Pay Commission for over 1 crore (Rs 10 million) government employees and pensioners.

The pay panel had in November last year recommended 14.27 per cent hike in basic pay at junior levels, the lowest in 70 years. The previous 6th Pay Commission had recommended a 20 per cent hike which the government doubled while implementing it in 2008.

After considering the increase proposed in allowances, the hike in remunerations comes to 23.55 per cent. "Considering the tight fiscal position this year, the government may improve upon the Pay Commission recommendation for basic pay to 18 per cent or at best 20 per cent," a senior official said.

The 7th Pay Commission report will be effective from January 1, he said, adding that the Cabinet will decide if the arrears for the six months have to be paid in one go or in installments.