The Hindu Business Line : No case for increase in salary

It would be clear that tradeoffs are involved here. For example, economic development requires increased capital expenditure on, say, infrastructure and communications technology. And social development requires that taxes on the poor are reduced.

Both these would mean lesser resources available for paying higher salaries to government employees. Higher salaries necessarily lead to lesser amount for capital investment. And to make good the investment shortfall, taxes on items consumed by the poor, such as matchboxes, would have to be raised.

The Sixth Pay Commission report accepts that revenue expenditure has increased, implying that expenditure on capital formation is low and declining.

The report indicates that capital expenditure, which constituted 21 per cent of government expenditures in 1996-97, has declined to 11 per cent in 2006-07. To reverse this trend, it is necessary to reduce revenue expenditure . The Commission should, therefore, have been careful in recommending the higher pay package.

The Commission also accepts the need to fix salaries keeping in mind the average incomes of the people in the country: “For fixing minimum salary, the Commission has mainly been guided by various factors... A fair comparison based on principles of equity and social justice also makes it imperative to take into account the economic conditions of large sections of the community that are less privileged than Government employees and several of whom live below the poverty line.”

Also, the Commission talks of linkage with the global economy: “The Government constituted the Sixth CPC at a time of... increasing globalisation of trade and industry.”

Global comparison

Let us, therefore, examine the status of government employees in India and other countries. According to the World Bank, while the average salary of a government employee in the UK in 1995-2000 was £19,000 a year, the average income of a British citizen was £13,500. The ratio of government employees’ income to the average income of citizens works out to 1.4. This ratio in some of the other countries is as follows: Indonesia 1.0; China 1.2; the US 1.4; Korea 1.5; Argentina 1.9; Singapore 2.9; and Malaysia 2.9.

In comparison, in India, the average income of government employee during the same period was Rs 75,000 per year against the average income of the Indian citizen of Rs 15,600. The ratio, at 4.8, is higher than in the aforementioned countries.

Further, while there was a decline in the ratio in Indonesia, Argentina and Korea between 1995 and 2000, it remained unchanged in China, England, Malaysia and US. The global tendency is for the salary of government employees to be brought closer to the incomes of the people. Not in India, though. The ratio has increased from 3.6 to 4.8 in the same period. The ratio becomes more skewed if corruption is taken into account.

The current wage bill of the government is around Rs 37,000 crore. And bribes taken by government servants are estimated to be around Rs 1.5 lakh crore. This amount should be added to their salaries. The salary of government employees then turns out to be many times over the income of the citizens.

It was expected that the Commission would address these anomalies. Unfortunately, it has ignored them and made recommendations only on the basis of financial capacity of the Government to pay and meeting the ‘needs’ of the employees: “The Commission is of the view that while recommending revision in pay and allowances, the question of adequacy of remuneration needs to be considered along with availability of fiscal space.”

Ignored issues

Considerations such as decline in capital expenditure, social imbalance and impact of globalisation have been given the go-by. The improved fiscal situation of the Government is a result of higher taxes imposed, in part, on the poor. This tax burden can be justified only if the revenues are used for productive purposes such as infrastructure development.

The Government has a choice to make: reduce taxes on the poor and salaries of government servants or increase both. Needless to say, the former is enjoined by good governance and the latter is not.

The objective of a democratically elected government is to secure the welfare of the people.

The recommendations of the Sixth Pay Commission will not help serve the larger objective of enhancing the welfare of the people as a whole.

(The author, a freelance writer, can be contacted at bharatj@sancharnet.in.)

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