Babus must deliver now, pay is no longer peanuts
Now that the government is no longer paying peanuts, will it get less monkeys, to paraphrase Singapore’s founder Lee Kuan Yew? Though the Seventh Central Pay Commission’s (SCPC) 24% hike in emoluments is less than the Sixth Pay Commisson’s 35%, at Rs 1 lakh crore, it is a whopping 0.65% of FY16 GDP, and that’s conservative as it doesn’t take into account the massive longer-term impact on pensions—nor does it take into account the eventual impact of this on the salaries of teachers, on PSUs and state governments. The 24% hike looks small considering it comes after a 10-year wait, but keep in mind government employees get a 3% annual increment and an 8% or so annual increase in inflation-linked Dearness Allowances anyway. Plus, there is a pension equal to half the last salary and post the SCPC, there will be equal pension for everyone. That means a government peon who retired in 2000—he gets paid 2-3 times the comparable private sector salary anyway—and got a pension of X will see his pension rising 3-4X since that will be the pension of a peon who retires in 2016; that has to be factored in while calculating the effective impact of SCPC. The 0.65% hit, will get lowered as GDP keeps rising but it still remains high—government emoluments rose from 2% of GDP in FY08 to 2.9% in FY10, after the Sixth Pay Commission, and settled at around 2.5% of GDP after a few years.
All numbers, amazingly, are an estimate, and could be horribly wrong. SCPC 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 Directorate General of Employment and Training, and 4 lakh, according to the Pay Commission. In the case of pensions, several years ago, Pronab Sen, who now heads the National Statistical Commission, had estimated that between a fourth and a third of pension payments were fake since there was little chance of these pensioners being alive.
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 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 the 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 fixing this will do to the fisc. SCPC has done well to address the IAS getting higher benefits than other services, but the real issue of getting government employees to deliver remains unanswered—absenteeism, for instance, is a chronic problem and ASER data shows how poorly government teachers perform. Performance-linked-pay has been talked about in the past, and SCPC reiterates this, but 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.