The much awaited award of the Sixth Pay Commission is finally public. My first reaction was that this ensures that the general elections will be held within the calendar year! Why would any government wait longer than necessary after having announced the farmers? loan waiver and now the significant, on average 40% wage hike, and that too with retrospective effect from January 2006. Looking at these two announcements together with the ongoing talks on the nuclear deal during the US visit of Mr Pranab Mukherjee, one must infer that we are now in full election mode.

But another 5 million public sector employees work in state governments and ten states are due to hold elections this year. So it is simple common sense that all these states will also implement the pay commission?s recommendations in a hurry. And if the additional bill for the central government employees is estimated to be between Rs 13,000 to Rs 30,000 crore, a similar amount would be paid out by state governments. While the central budget, according to Mr Chidambaram, has a headroom of about Rs 20000 crore for the pay commission award, I wonder if any of the state governments have made similar provisions. I don?t think the fiscal impact of this award will be as negative as that of the fifth pay commission which according to the World Bank had a disastrous effect on government?s fiscal balances. The Central budget is in much better shape today than in 1998 and a large majority of state governments have vastly improved their fiscal position. The fiscal situation will surely worsen but on all accounts remain well within acceptable limits.

The pay commission?s award will also have to be implemented in public sector enterprises and will surely have a bearing on wage levels in the formal private sector. All this together will surely imply a greater purchasing power with households. Coming at a time when inflation is rising, this could engender strong inflationary expectations. This has to be prevented at all costs. Inflationary expectations, once formed, are very difficult to roll back. The central government will therefore do well to immediately announce a staggered pay out plan for arrears, that channels these additional incomes in to savings and ensure that they are not used for additional consumption. This will this set a good example for the states and raise the savings rate.

Given the leaks in the media, there was a fair bit of d?j? vu about the announcement. However, I must first compliment the Commission for having raised school teachers? and principal?s salaries by more than the average 40%. In fact, if my very quick estimates are right, at the higher end of the scales, teachers? salaries in some cases are higher by nearly 200%. This is indeed commendable and I hope this is also the case for university and college teachers. I wish this is borne out on closer reading of the report. But the Commission has also clearly not breached the time honoured and dysfunctional rule of maintaining a ratio of 1:12 between the highest and lowest salaries in the government. This ratio is more than a hundred in the private sector. Nor has the pay commission been able to recommend a system of performance linked incentive system. These, I am told, are political ?hot potatoes? but should the Commission not have addressed them? Although full details are not yet available, I will not be surprised if the Commission has also not suggested any measures to reduce the numbers in lower echelons and increasethe number of senior positions where the officers are clearly over stretched.

Reportedly, the consolidated monthly salary of a ?full secretary? in the central government will now be Rs 80,000. A former cabinet secretary who was a co-panellist with me on a TV channel, felt that along with other perks, this made a reasonable package. He held the view despite being pointed out that a CEO of a medium sized private company would make approximately eight times as much. Another former cabinet secretary, I remember, had said at the time of the fifth pay commission that he only wanted the secretary?s salary to be the same as that at the time of independence in terms of the amount of gold it could buy. At the time of independence this came to about a 100 tolas of the yellow metal. I wonder if he gave the same eminently reasonable suggestion to the sixth pay commission and even if he did not, why did the commission not apply the gold standard? After all, we must be able to afford to our senior most bureaucrats at least the same standard of living as their predecessors enjoyed under the colonial masters and when the country was much poorer. If not, can we seriously expect to attract the required talent and also expect it to achieve the desired levels of efficiency, effectiveness and integrity. The government will do well to ponder over these issues before accepting the wage award.

The writer is director & CEO of Icrier, and member, NSAB. These are his personal views