1. Seventh Pay Commission report: Does less peanuts mean less monkeys?

Seventh Pay Commission report: Does less peanuts mean less monkeys?

On Seventh Pay Commission report, that’s really the question to ask when you look at the huge salary hikes given by the panel.

By: | New Delhi | Updated: November 20, 2015 12:16 PM
7th pay commission, 7th pay commission report, 7th pay panel, 7th pay panel report, Government 7th pay panel report, 7th-pay-commission-pay- allowances

Finance Minister Arun Jaitley receiving the Seventh Pay Commission report from its Chairman Justice A K Mathur in New Delhi on Thursday. (PTI)

7th pay commission report Now that the government is no longer paying peanuts, will it get less monkeys, to rephrase the comment by Singapore’s founder Lee Kuan Yew? Though the Seventh Pay Commission reports’s 24% hike in emoluments is much less than the 6th Pay Commission’s 35%, at Rs 1 lakh crore, the increment adds up to a whopping 0.65% of FY16 GDP, and that is a conservative estimate since it does not take into account the longer-term impact on pensions. The 24% hike looks small considering it comes after a 10-year wait, but it is important to keep in mind all government employees get a 3% annual increment and an 8% or so annual increase in inflation-linked Dearness Allowances anyway. On top of this, there is a pension equal to half your last salary and, thanks to the generosity of the 7th Pay Commission, there will now be equal pension for everyone. That means a government peon who retired in 1990, who in any case gets paid 2-3 times what a private sector person does, and got a pension of X may now find his pension rising to 2X or 3X since that will be the pension of a peon who retires next year – ideally that should also be factored in while calculating effective salaries today or the effective impact of the 7th Pay Commission. The 0.65% hit, the government has said, can be absorbed and will probably get lowered as GDP keeps rising – government pay+allowances (without pension) as a percent of GDP rose from 1.3% of GDP in FY08 to 1.92% in FY10 after the 6th Pay Commission and settled at around 1.6% of GDP after a few years.

All numbers, amazingly, are an estimate, and could be horribly wrong. The Seventh Pay Commission talks of the Department of Posts having 4.6 lakh employees according to one source, 2.1 lakh according to another and 1.9 lakh according to it; for defence civilian employees, the numbers vary from 35,000 according to the budget for FY14 to 3.8 lakh according to the DGET and 4 lakh according to the 7th Pay Commission. The same goes for pensions. Several years ago, Pronab Sen who now heads the National Statistical Commission, had done a study showing anywhere between a fourth and a third of pension payments were fake since there was little chance of these pensioners being alive going by mortality rates.

The problem with any Pay Commission is that it can do little to fix the fact that too much gets paid at the lower end of the government and possibly too little at the top end relative to salaries in the private sector – though the job security and huge pensions mean the top-end salaries aren’t that low either. In which case, the decadal exercise becomes an averaging of the maximum that babus want and the minimum that can be paid without them going on strike. As a result, it does not address the real issue of India having, at the same time, a bloated bureaucracy and huge shortages in critical areas like doctors, paramedics, policemen, judges, teachers and so on – the Pay Commission points to India’s size of government being 139 per lakh population versus 668 for the US. Imagine what replicating the US size will do to the fisc. The Seventh Pay Commission has done well to address the IAS hogging the top posts and getting higher salaries vis a vis the other services, but the real question of how to ensure citizens get government employees to deliver remains unanswered – absenteeism, for instance, is a chronic problem and ASER data shows just how poorly government teachers perform. Performance-linked-pay has been talked about in the past, and the 7th Pay Commission reiterates this, but it has to be kept in mind that even if the government accepts it – it has not in the past – this will be over and above the Rs 1 lakh crore bonus. The only saving grace, for a demand-strapped economy, is what this will do for the purchase of automobiles and other goods, though a tax cut of a similar amount or a road-building programme would have achieved a lot more.

  1. A
    Nov 21, 2015 at 12:51 pm
    The writer is bereft of knowledge. The pension to central govt emp. is stopped for emp. joining w.ef. 01.01.2004.
  2. B
    Nov 21, 2015 at 8:38 pm
    It would augur well for the writer and also financial express to do a little research before spitting out a few words in the heat of the moment.Taking refuge behind someone as great and visionary as Lee Kuan Yew to take a dig at a section of people and call them monkeys, goes well beyond sarcasm and borders on pure envy. Regards
  3. M
    Nov 20, 2015 at 4:32 pm
    What will happen now? Govt will raise Income tax to 50%. Remove S. D. reduce corporate tax, so that pvt cos can pay more to their employees. Govt will take from one pocket from govt employees and put this in other pocket.
  4. R
    Nov 20, 2015 at 9:40 pm
    Pay commission should not that 90% of potion works in informal sector and entry level ries are much higher than What Private sector pays. Now most of youth will waste their productive year in preparing of govt jobs. Poor private sector employees and informal workers will face the burnt of inflation which is seems to be under reported. Previously, engineers and MBA fought hard for govt clerical jobs. Now they will fight for govt peon jobs and other C grade jobs.
  5. S
    sahil bansal
    Nov 20, 2015 at 1:31 pm
    I have one question for author of this article. Will he be happy if he just gets 3% hike every year and 22 % after 10 years? No. Nobody think that way for private sector employees. They get on average 10-15% hike every year with yearly bonuses of around 5-10 % and over than that 30-40% hike when they shift their job. This government employee cant do as most of them are working in a field where they dont have any other opportunity available within country. I hope writer will agree with the fact the employees especially in grade A of central government are nowhere less competent than private fellows. Dont forget everyone try for central government jobs and only best gets it. Yes there are some examples from IIM and all where student get directly placed in private and gets better pay.
  6. S
    Sitaram Agarwal
    Nov 20, 2015 at 12:23 pm
    I disapprove totally. It would lead to inflation that would not be controllable.
  7. R
    Raja K
    Nov 21, 2015 at 5:13 pm
    instead of pouring money to few, competent workers should be recruited in all critical areas where there is awful shortage of manpower. The House Rent Allowance bonanza discriminates the small town government employees and a city based employee never moves to small town. It creates excess man power in cities where they are not required and in small town where there is need for personnel. Unlike private sector where huge bonus, stock option, periodical incentives government employees has to content with ry. Considering the income tax (present slabs) the government could 'plough back' substantial amount as TDs -Income tax. Where else one can get a committed tax income unlike a ries cl ?
  8. M
    Nov 22, 2015 at 7:01 am
    Approx. 24% increase = Rs 1.02 Lakh Crores increase means existing expenditure on ry is(Rs 1.02 Lakh Crores /0.24 = Rs 4.25 Lakh Crores). So from 1st Jan 2016, total outflow on ry is Rs 5.27 Lakh Crores(=4.25 1.02) i.e. Rs 5,27,000 Crores($ 81 Billion ) every year. Total Employees Pensioners is 47 52 = 99 Lakhs(=0.99 Crs). That means Average Per Capita ry will be Rs 5,27,000 Crs/0.99 Cr = Rs 5,32,323 pa. This is equal to Rs 44,360 pm or Rs 1478.6 per day.(That too they work only for about 200 to 220 days in a year). THE POVERTY LINE DEFINITION IN INDIA IS Rs 32/- per day for Rural and Rs 47/- per day for Urban. The lazy, lethargic employees get on an average of Rs 1478.6 per day whereas poverty line figure is Rs 32/- per day. The employees are 1478.6/32 = 46 TIMES RICHER THAN Poor of RURAL INDIA or 1478.6/47=31.5 TIMES RICHER THAN Poor of URBAN INDIA. Time for Serious Interospection!!!! India’s potion is 125 Crores. This much of outflow for only 0.99 Crs of citizens out of which 0.52 crs are retired and enjoying pensions!!
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