The panel must heed market realities in recommending salary hikes
The Sixth Pay Commission is expected to turn in its report soon so that the government’s decisions on its recommendations can be announced before the general election in 2009.There is considerable misgiving among economists about likely impact on the Central and state exchequers, and also among the business media about the “bounty” expected to be bestowed on the babus.
Such anxiety is based on the way the government handled the recommendations of the previous Pay Commission about 10 years ago. It is worth recalling the bizarre drama that preceded the changes effected to the Fifth Pay Commission report by the government in September 1997. The employee organizations were agitated about the recommendations that had linked increase in pay scales to non-filling up of vacancies and abolition of about 300,000 posts. According to informal reports, employee organization leaders would have been satisfied with a 15-30 per cent increase over the recommended pay scales, although publicly they were demanding a very steep hike.
Political uncertainty ruled the air. The United Front government had already seen a change of Prime Minister and the new incumbent was IK Gujral. The Left parties, as at present, were among the kingmakers of those times. The Congress, that was extending support from outside the government, was threatening to withdraw support. Barring the Finance Minister, who was naturally concerned about the fiscal deficit situation in a period of declining economic growth, most of the coalition partners were opting for populist measures in view of the looming general election.
The Prime Minister was proposing to address the annual United Nation’s jamboree in New York in September. He was also looking forward to shaking hands with President Bill Clinton on the sidelines of the UN. Since the employees had served notice of a general strike on pay issues coinciding with his trip, Gujral was upset and subtly hinted to some Ministers likely to negotiate with the employees that they should avoid confrontation at all cost.
The Left parties stridently supported the demand for unprecedented increase in pay scales and opposed abolition of any posts to offset the costs. For the first time, they addressed an employees’ rally in support of their demands right inside North Block, which houses the Finance and Home Ministries. When the employee organizations met the Group of Ministers consisting of Labour Minister Ram Vilas Paswan, Home Minister Indrajit Gupta and Finance Minister P Chidambaram, the former two gave hardly any opportunity for the latter to negotiate and indicated the government’s willingness to accept the employees’ demands in entirety.
In one stroke, the new pay revision burden on the Centre alone rose by Rs 10,000 crore over and above the recommended outgo. The fragile fiscal situation of the states worsened when they followed the Centre’s example. The Finance Minister, announcing the government’s acceptance of the employees’
Unreasonable: employees’ unions triggered the crisis last time round
demands on the eve of the festival season, urged them to go and spend the bounty. He also expressed the hope that when the states, the PSUs and the private sector inevitably revised their pay packets, there would be a surge in consumer buying that could stoke a dormant consumer market.
His “dream budget” in February 1997 had tried to raise revenue even while offering a variety of tax sops but his rosy expectations were turning sour due to a variety of factors. Besides the political turmoil, the states where action to spur the economic growth lies had not yet hooked on to the economic, power sector and fiscal reform agenda. They were also not doing their bit to raise their own revenue. Introduction of VAT that benefited the states in recent years was yet an unresolved issue. An overload of subsidies, particularly on account of free power supply, had made many states bankrupt.
The Pay Commission award came amidst a lot of negative factors, including declining investor and consumer confidence levels. In fact, Reserve Bank of India documents of later years showed that, instead of spending the pay awards, employees played safe in a period of turmoil and put their new income in fixed-term bank deposits.
The failure of the governments to seriously deal with such normal HR issues is not sufficient ground for not recommending pay scales for its employees comparable to the prevailing market situation
This alarming background has clouded all discussion on government pay scales and their parity with prevailing market trends. There is also a considerable gap in information about the so-called pay and perks enjoyed by government servants. It is pertinent to note that the pay of the highest paid civil servants — the Secretaries — had been frozen at Rs 3,000 for over 50 years. It was revised to Rs 8,000 in 1986 and rose to Rs 26,000 in 1997. With the addition of dearness allowance, the top-end gross income hovers around Rs 40,000 now. After deductions towards income tax, compulsory contributions like house rent, provident fund, insurance, the take-home is less than Rs 30,000,when one’s family financial responsibilities are at a peak. As the pay scales tend to be low throughout one’s career, the scope for personal savings is also very low. One hears of very unrealistic arguments that government officials, being public servants, should not compare themselves with executives in the private sector. Even when the economy (and market prices) was controlled, such arguments had no validity. While embracing market-oriented policies across the board, the government is attempting to buck the market forces when it comes to paying the nation’s President, Prime Minister, MPs and officials — with disastrous consequences. By pegging the pay at the top of the civil service at Rs 80,000 (as reported by the media), the Commission is inadvertently pegging the pay of CEOs of PSUs, officials in leading scientific (CSIR, BARC, ISRO),academic (IIM,IIT),and regulatory institutions (TRAI, SEBI) and many others. It is not clear whether the argument is that the role, responsibility and impact of decisions of the heads of the Direct, Indirect taxes, Postal, Telecommunication authorities, economic Ministries, Chief Secretaries of states and several other key government functionaries is less than of CEOs of successful mid-cap companies in the private sector. Can the latter hire any decent CEO at less than Rs 20 lakh a year, not counting his several taxable and non-taxable fringe benefits? The proposed pay of Rs 80,000 per month for the seniormost officials places the before-tax income at less than Rs 10 lakh a year. The private sector pays this sum to raw recruits from second-rung business and engineering schools.
It is nobody’s argument that there is no redundancy in the official machinery. Also, the pay and reward must be closely connected to performance. The failure of the governments to seriously deal with such normal HR issues is not sufficient ground for not recommending pay scales for its employees comparable to the prevailing market situation. This is especially because the present Indian economy is a greatly transformed one from 1997, and is suffering from a severe talent crunch. The government, PSUs, scientific and top academic institutions have vast experienced HR that is being lured away. If the pay scales are unrelated to the external world, it increases the vulnerability of the public servants as well — increasing the likelihood of corruption.An expert body like the Pay Commission is not expected to have ostrich-like qualities.
