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.