The Hindu Business Line : Budget and emoluments of babudom

Do the emoluments of babudom absorb too high a share of Government expenditure? This does not seem to be fully supported by data on the growth of Government staff and the expenditure thereon, as budgeted by the Centre in recent years, says S. VENKITARAMANAN.

The Budget for 2008-09 presented by the Finance Minister, Mr P. Chidambaram, has received its share of bouquets and brickbats. While some observers have criticised it as being not sufficiently fiscally responsible, others charge that it has been non-transparent to the extent it understates the real fiscal deficit.

Even though there are signs of conforming to fiscal responsibility norms, critics have pointed out that the fiscal deficit is itself loaded against capital expenditure. (This has been, in a sense, admitted by the Finance Minister.) In their view, more money spent on capital items, such as infrastructure, would have helped to increase the productivity of agriculture as also the competitiveness of Indian manufacturing. Be this as it may, there are some key aspects related to staff and salaries, which impact the Budget. Let us take a look at these issues.

Some fiscal headroom

One concern of observers is the additional expenditure on account of the recommendations of the Pay Commission. They say the emoluments of babudom absorb too high a share of Government expenditure. This criticism does not, however, seem to be fully supported by data when we look at the statistics on the growth of Government staff and the expenditure thereon, as budgeted by the Centre in recent years.

The total expenditure on staff in the Budget for 2008-09, excluding Railways, which is a large employer and covers its costs, comes to roughly Rs 26,000 crore. The number of staff employed by Government of India, excluding Railways, has remained almost stationary, at around 19 million and out of this, the Department of Posts — a service department — accounts for nearly 4,84,000. Besides, the Police forces employed by Government of India for obvious reasons account for a large number, namely, 8,25,000. The Revenue Department employs 1,41,000.

The expenditure on the Revenue Department staff is, however, only Rs 2,200 crore, which is a small proportion of the tax revenue collection of roughly Rs 6,87,715 crore. If we consider the cost of staff in relation to the taxes collected, it is small, reflecting the improvements in tax compliance, which Mr Chidambaram has brought about through various measures. All compliments to him and to his tax-gatherers.

There remains criticism by some economists that the expenditure on the Pay Commission’s recommendations is likely to submerge the Budget numbers and increase the deficit disproportionately. Considering that the total expenditure on staff budgeted, excluding Railways, is roughly in the order of Rs 26,000 crore, even a 20 per cent increase in the emoluments is likely to cost only Rs 5,000 crore.

Even if, as an extreme act of generosity, the Government decides to buy peace with the employees by increasing the percentage of enhancement, I cannot see the impact going beyond Rs 13,000 crore. Of course, this will have spill-over implications for the State Governments, which have a large employee strength, directly as well as indirectly, in the form of educational establishments, such as teachers, who are likely to clamour for an equal degree of enhancement. Caution is, therefore, the watchword to follow, although there may be some fiscal headroom.

Inevitable expenditure

I am pointing this out only to show that it is not fiscally irresponsible to assume that the FM can accommodate the effects of the Pay Commission’s recommendations. The total revenue expenditure is estimated at Rs 6,58,000 crore and the fiscal deficit at Rs 1,33,000 crore, excluding Pay Commission. Given the buoyancy of revenue, the increase in tax income should take care of the Pay Commission expenditure. That expenditure is inevitable, considering the competitive scales of pay offered by the private sector, which today offers remunerative possibilities to various classes of Government employees.

The principle of fair comparison will naturally be invoked by employees of various categories, especially in the public sector, where the employees are likely to be tempted by the offer of higher emoluments in the private sector. Government’s own employees will naturally ask for an equivalent hike in emoluments to match those in the private sector.

Public sector emoluments

While on the subject, it is appropriate to examine how public sector emoluments have increased over time. The Economic Survey for 2007-08 produced in the Budget for 2008-09 has an instructive table on how the per capita emoluments of public sector employees have increased from 1971-72 to the current period. This increase has been of the order of 54 times, whereas the consumer price inflation has only been of the order of 14 times. Obviously, the public sector has tended to increase its emoluments per capita more liberally than justified by consumer price increases. Care has to be taken to ensure that, in future, emoluments are not increased disproportionately in autonomous public sector enterprises. Autonomy cannot be equated with irresponsibility. While public sector emoluments have risen fast, their employment has not kept pace with population increase.

The figures published in a table in the Economic Survey for 2007-08 show that the public sector employment has also not increased, particularly in the periods since liberalisation. In 1991, the total Central staff, including quasi-governmental agencies, was of the order of 34 million. In 2005, it came down to 29.3 million. Times have, indeed, changed since the early 1980s, when employment had been mainly offered by the public sector. Then, the Government sector had to take care of the increased demand for jobs from various sections. This position has changed since then. The Budget has focused attention on increasing demand in the economy through various measures. It has to be awarded a high rating for the various initiatives, such as reduction of customs and excise duties of various kinds. In particular, its bold initiative in respect of income-tax has also left money in the hands of the public consumer. This will trigger demand for consumer goods, consumer durables and for housing loans, besides increasing savings, providing funds for infrastructure.

The Budget has also been designed appropriately to take into account the potential negative effects of the US slowdown and the impact of the appreciation of the rupee.

Impact on employment

It has to take care of the fact that the growth of the economy without growth of jobs is a counter-productive exercise. Jobless growth will not help in the achievement of the goal of inclusive expansion of the economy. A rate of growth of 9 to 10 per cent does not make sense to the deprived sections of the people unless the number of jobs grows. This can come about primarily in manufacturing, services and agriculture. The Budget requires appropriate implementation of policy measures to be recalibrated from time to time, taking into account the various changes in the international scene and in the domestic economy. The Budget is not a one-time exercise. It is only the beginning of the nation’s journey.

I would like to stress that the Finance Ministry should seek to bring out the additional employment that may be attributed directly or indirectly to Budget proposals.

True, it is difficult to calculate what impact each Budget proposal has, especially when one has to assess the expansion of jobs as a result of increased consumption and investment resulting from tax changes. It may not, however, be beyond the ingenuity of Government economists to evaluate a measure of the Budget impact on the employment situation in the country.

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