Seventh Pay Commission Report: A tough challenge

Seventh Pay Commission Report: A tough challenge

The 7th pay commission recommendations should not become an exercise of granting a bonanza to central govt employees at the expense of other sections of the society

Seventh Pay Commission Report: The bulk of the expenditure of Rs 1.02 lakh crore relates to augmenting the salaries and allowances of the clerical-level employees, where the value added to decision-making is minimal.

The country recently witnessed a sad spectacle when 255 PhDs and over 25,000 post-graduates, apart from nearly 30 lakh other candidates, applied for 368 positions of peons at the state secretariat in Lucknow. This distortion, by no means unusual, is the direct result of base-level government employees being paid wages much above the market rate. Such instances are likely to further increase after the implementation of the recommendations of the Seventh Pay Commission, which will be one of the main challenges the central government will face in the new year.

The commission has determined the initial starting salary at the lowest entry point in government at Rs 18,000, when the comparable wage for a helper in the private sector would be only about Rs 9,000 to Rs 11,000 per month. Currently, in the government, this employee gets about R15,750, including dearness allowance. In other words, if the proposals are accepted, with effect from the new year, the increase in emoluments at the lowest level in the government will be a minimum of 14.2%.

The figure of Rs 18,000 has been determined after considering the minimum nutritional, clothing, fuel, recreational and housing requirements for a family of four. The pay commission has, by and large, followed the methodology approved by 15th Indian Labour Commission. Its approach is based on the idealistic notion that the government should set standards by being an ideal employer. The pay commission then divides the proposed new minimum basic pay by the existing basic salary of Rs 7,000 to determine a factor of 2.57. With some small modifications, this is applied across the board to determine salaries all along the hierarchy comprising fifteen levels in all. At the apex level of secretary to the government, this multiplier is 2.81. The salary at this level will thus increase from the existing Rs 80,000 per month (Rs 1,78,000 with dearness allowance) to Rs 2,25,000 per month.Along with increase in pensions of 23.66%, these proposals will require an additional outlay of Rs 1, 02,100 crore per annum (0.65% of GDP). The commission is confident that the government will be able to absorb this expenditure without straining the fisc. This however may be a flawed assumption, especially if oil and commodity prices do not remain so benign and inflation returns. Also, the commission has hardly examined the effect of this expenditure on state governments and various autonomous and private organisations, often compelled to follow suit in some form or the other. Some state governments in fact have already petitioned the Centre to postpone the implementation of these proposals because they expect that implementing them will strain their limited budgets.

It is worthwhile also to examine the opportunity cost of this expenditure and its overall effect on the economy; 89% the persons employed by the central government, admits the Pay Commission, belong to Group ‘C’ where functions are clerical; 8% of the personnel belong to Group ‘B’ where responsibilities tend to relate to first level supervision of clerical cadres or day-to-day implementation of policies and rules. This leaves just three 3% Group ‘A personnel’ whose responsibilities are either managerial or relate to policy formulation or evaluation. The bulk of the expenditure of Rs 1.02 lakh crore thus relates to augmenting the salaries and allowances of Group ‘C’ employees where the value added to decision-making is minimal. Increasing their pay and allowances further, in economic terms, means only increasing the subsidy to a privileged segment of the population. The government must ask itself the question whether with all its pressing developmental responsibilities, it can afford to pay such a subsidy to people who, comparatively speaking, are already much better off than millions of their countrymen. If a subsidy has to be given, wouldn’t marginal farmers in distress or those below the poverty line be better candidates for such largesse? Wouldn’t this huge outlay serve the national interest better if, for example, it were directed towards increasing irrigation facilities or providing better infrastructure or improving healthcare?

On the other hand, the 3% Group ‘A’ employees—particularly at the top echelons—are being paid much below the market wage, that is, they would earn much more were they to carry out comparable functions outside the government. Even after the pay commission recommendations, a secretary to the government, would get only Rs 2,25,000 per month. Even a middle-level executive in a multi- national corporation would be earning a higher salary than this. Impartial commentators may point out to the posh housing such officials are entitled to. Most of this unfortunately was built decades ago. Its written-down value today, apart from the locational advantage it enjoys, is negligible. It is generally poorly maintained; when properly maintained, it invariably results in heavy annual expenditure on account of current repairs and maintenance. Perhaps both the government as well as the officials concerned would be better served if such old construction were demolished, the lands auctioned and the officers concerned paid wages commensurate with the functions they perform. Failure to look at the problem realistically has only resulted in some officials obtaining all manner of perks in an opaque manner. Conditions thus continue to be created for rent-seeking and corruption. Despite this, the government may be constrained not to go beyond what the commission has recommended, quite simply because it may not want to be seen as favouring the rich and increasing inequality in the society.

The present occasion is also a good opportunity for the government to examine how it can improve governance through its personnel policies: in recent times, despite its best efforts to downsize, the sanctioned strength of personnel which stood at 38.25 lakh on January 1, 2006, increased to 40.49 lakh, exactly 8 years later, on January 1, 2014. Over the years, the departments have hardly reduced the number of unproductive posts; or rationalised the functioning of departments through computerisation; or out-sourced peripheral functions. The government urgently needs to develop leaner and more effective organisational structures, rationalise procedures, decrease the wage bill, and use resources productively. But it would need a third party to carry out such a review, because most departments would be loath to do anything that reduces their turfs.

The appointment of a pay commission and implementation of its recommendations every ten years should not degenerate in to a mechanical exercise of granting a bonanza to central government employees at the expense of other sections of the society. Such a course of action is is potentially inflationary- and as such, hardly benefits even those persons for whom the expenditure is incurred. Reckless spending has twice nearly landed the country in an economic crisis-once in 1989-90, when the government started depending on short term external commercial borrowing to finance its current expenditure; and again more recently, in 2013, when the current account and fiscal deficits almost span out of control because of excessive governmental spending.

“…..And borrowing dulls the edge of husbandry,” (Hamlet I:3). These words of Shakespeare apply as much to nations as they do to households. At a time when ten lakh people are joining the workforce every month, the country needs productive jobs outside the government, not sinecures within it.

The author was formerly chief commissioner of income-tax and ombudsman to the income-tax department, Mumbai