Setting aside the recommendations of the 11th Finance Commission that had said there should be no pay panel for central government employees in the future, the Union Cabinet, headed by Prime Minister Manmohan Singh, on Thursday decided to constitute a three-member Sixth Pay Commission to revise the pay scales of government employees.

This was announced by Priya Ranjan Dasmunshi, Union Minister for Information and Broadcasting and the spokesman for the government, at a press conference in New Delhi after the Cabinet meet.

No timeframe has been fixed for the commission yet to give its report.

The new Pay Commission proposals may cost the government an additional financial burden of up to Rs 20,000 crore (Rs 200 billion), towards salary and pension hike.

However, analysts believe that the implementation of these recommendations might take up to three years and the government might therefore grant an interim relief of 10-15% to the government staff.

"Only two states -- namely Gujarat and Madhya Pradesh -- have opposed the appointment of the 6^th Pay Commission," Dasmunshi said.

He added that the government had overlooked the recommendation of the 11^th Finance Commission as it felt that the employees needed some relief. "This is a good news for central government employees," he said.

Pay commissions are periodically constituted to examine various issues such as pay scales and allowances, retirement benefits / pension, promotion policies, etc. "The framework for the new commission would be decided by the prime minister in consultation with the Union Finance Minister P Chidambaram," Dasmunshi said.

The Fifth Pay Commission was set up in 1994 and implemented in 1997, and had cost the exchequer Rs 17,000 crore (Rs 170 billion).