Trade unions and employees federations are happy with the move; the partners of the ruling United Progressive Alliance government have welcomed the decision warmly; even the Opposition parties have not resented the decision.

Insiders say Prime Minister Manmohan Singh and Finance Minister P Chidambaram must be unhappy with the decision considering the crippling blow the Indian economy will suffer when the Sixth Pay Commission's recommendations are implemented in a couple of years.

No doubt elated with the Cabinet's decision are Prakash Karat, general secretary, Communist Party of India-Marxist, and Doraiswamy Raja, national secretary, Communist Party of India.

Why are Karat and Raja happy with the government's move to set up a new Pay Commission?

In the last two years, Karat, Raja, other Communist leaders and the Communist trade unions have been vocal in demanding that the Sixth Pay Commission be set up.

Was political pressure one reason that led to the setting up of the Pay Commission?

Economists fear the country will be saddled with an intolerable financial burden which the Indian economy can ill afford. Politicians believe otherwise.

Raja says the Left parties have not been subjecting the Manmohan Singh government to any political pressure over the setting up of a new wage panel.

"The last Pay Commission (the 5th Pay Commission) was set up in 1994. So, naturally, there is a need for a new one now," Raja told rediff.com

Raja said the Commission's proposals will lead to a rise in the salaries of industrial workers, who are ill-paid compared to other sectors in the economy. "If India does not take care of its labourers and employees, who will?" he asks.

Congress leader Janardan Dwivedi too discounts reports that political pressure from the Left parties hastened the setting up of the Commission. "I don't think there was any political pressure. But every trade union has been demanding wage revision in the last few years," Dwivedi told rediff.com

Leaders like Dwivedi say the Congress party and the government are aware of the impact that a new wage revision will have on the exchequer. The Fifth Pay Commission's recommendations ravaged the finances of the central and state governments.

The central government declared salary and allowances benefits on its 3.3 million employees in 1996 and insisted that state governments too revise the pay of their employees as per the Commission's recommendations.

The result: Before the Fifth Pay Commission's recommendations came into effect, the central government's wage bill (including pension dues of Rs 5,094 crores) stood at Rs 21,885 crores in 1996-1997. This shot up by nearly 99 per cent to Rs 43,568 crores in 1999-2000.

The impact of the Fifth Pay Commission was so brutal that 13 Indian states did not have the money to pay salaries to its employees in 2000. These days, almost 90 per cent of the revenues of the states goes into just paying wages.

When the Fifth Pay Commission's recommendations devastated the finances of the central and state governments, why is the Manmohan Singh government going ahead with a new Commission?

Last year the government set up a committee to study the demand for wage revision. The committee headed by Cabinet Secretary B K Chaturvedi turned down the request for constituting the Sixth Pay Commission to review the salaries and perks of government employees.

The Chaturvedi committee said the central government may not be able to bear the additional burden and the states have barely begun to recover from the adverse impact of the Fifth Pay Commission's recommendations that were implemented in 1997.

Moreover, the Twelfth Finance Commission had also urged that the government stop the practice of increasing staff salaries by appointing pay commissions every 10 years.

Two reasons are said to have motivated the Manmohan Singh government to go ahead with setting up a new Pay Commission.

First, Congress leaders say the constitution of the Sixth Pay Commission was one of the major demands of the Left parties that support the government from the outside. The Congress-led government agreed to the demand, sensing that keeping the nearly 5.5 million central government employees in good humour is a political imperative.

Second, the Congress has an eye on the general election in 2009.

Congress leaders say the setting up of the Commission has been timed perfectly. The three-member Sixth Pay Commission has been asked to prepare the wage-revision report in 18 months.

"This is perfect timing. If everything goes well, the government will be able to increase the salaries of government employees just before the general election in 2009," a Congress leader pointed out.

Did the central government consult the states before setting up the Commission?

Officials say the finance ministry in the last six months wrote to all state governments seeking their views on the constitution of a new Pay Commission. This was done because a revision in wages for the central government employees would lead to demands of parity from state government staff too.

Only 16 states sent in their views to the Centre. All of them have demanded that the central government should share the financial burden that the new Pay Commission will impose on them. Earlier it was said that Gujarat and Madhya Pradesh had opposed the new Commission, but both states have since denied this.

The Fifth Pay Commission, which was constituted in April 1994 and implemented in 1997, created an additional burden of Rs 17,000 crores per year on the government's finances. Some states could not bear the burden of the hike at the time, forcing the Centre to devise a financial bailout package for them.

The present Commission is likely to cause an additional burden of Rs 20,000 crores per year on the central government alone. The burden on the states put together would be much larger.

Bharatiya Janata Party leader Arun Jaitley says no state government, including the BJP-ruled states of Gujarat and Madhya Pradesh, is against the Sixth Pay Commission.

"We feel the Government of India should have convened the meeting of the National Developmental Council to discuss this issue," Jaitley told rediff.com "All the states should have been called for the meeting to discuss and then decide about the setting up of the Commission."

• Also see: Sixth Pay Commission may derail the Indian economy