The Centre could discontinue the practice of appointing pay commissions every 10 years to suggest salary revisions for its staff, justice AK Mathur, chairman of the Seventh Central Pay Commission (7th CPC), said. Instead, he said, the government could have a mechanism for annual increment in salaries, taking into account all aspects including the consumer prices. While the dearness allowance offsets the impact of retail inflation on the salaries of government employees, the salary increases are now accorded by way of the pay commission-awarded “fitment” factor and annual increment.
Since pay commission awards come once in 10 years, the two to three years subsequent to each award tend to be fiscally stressful for the government — the latest instances are FY09 and FY10, years when the Centre’s fiscal deficit exceeded 6% and states too suffered major blows to their finances.
According to Mathur, this could be avoided if a system of annual salary hikes — as in the private sector — is implemented for government staff as well. “The government should review the matter (salary of its staff) every year looking into the data available to it and based on the price index,” he told FE in an interview.
The 7thCPC, which submitted its report to the government on Thursday, has proposed an increase of 23.55% in the pay (salary and allowances) of central government employees and similar increase in pensions, which will become effective from January 1, 2016. The additional payout is projected to be Rs 1.02 lakh crore in FY17, or 0.65% of GDP, making it difficult for the government to reduce the fiscal deficit by 0.4% to 3.5% of GDP in the year. India Ratings in a note said the actual impact of the 7th CPC award could be higher at Rs 1.27 lakh crore after taking into account the arrears for three months (January-March) as the implementation will be from April 1, 2016.
Concurring with the Mathur, India Ratings chief economist Devendra Pant said the huge salary revision after the 6th CPC award came at a time when there was a global slowdown and the impact was severe on the exchequer for the initial two years. “A formula needs to be developed by the government to implement salary revision in every two or three years,” Pant said. The formula can take into account benefits like fitment and annual increment, besides DA given in the present pay commission format. If periodic revision was applied, the cumulative impact of Rs 1.02 lakh crore of the 7th CPC would have been spread over several years, rather than primarily in FY17 and FY18, providing the government with better absorbing capacity. The pay commission recommendations also put huge burden the state governments, PSUs and central universities, which take their cue from the commissions and undertake similar pay revisions.
Mathur said that the 7th CPC should take credit for timely submission of report which avoided the need for the government to pay massive arrears unlike in the case of the 6th CPC award (which came 31 months after the due date).
Mathur said the recommendation for a virtual one-rank-one-pension scheme for both the civilian and armed forces was one of the most important recommendations of the panel. “It will be difficult for the government to go back on this,” he said. He said the commission did not consider the OROP announced by the government for armed forces earlier this year as it was not part of their mandate.
Mathur said the panel’s recommendations were in consonance with of the financial position of the government conveyed to it and hence, “the present dispensation that we have given, I think the government will be more keen to accept”.