The government has by-and-large accepted the recommendations of the Seventh Central Pay Commission. The panel’s chief, Justice AK Mathur, spoke to Bloomberg TV India and admitted that the allowances portion — on which a decision has been deferred for now — could further pressure government finances.

Total allowances are being pegged around ₹28,000 crore, and the decision on this will come a little down the road. How much did you deliberate on the matter of allowances? How much strain will the fisc face from that?

Allowances will compensate for the small drop in the salary structure. We have included a number of allowances, particularly for the military service personnel. Some of these have not been extended to the paramilitary services.

On the civilian side, there are things like the housing allowance; where, for example, someone living in Delhi gets a benefit even at the starting end of the pay-grade. On that point, there is an inappropriate comparison being made by employees — that Class-IV gets ₹18,000 whereas a Cabinet Secretary gets ₹2,50,000; that this gap is too much. The comparison is absolutely uncalled for because we are comparing apples with oranges. The comparison must be made among people who are placed similarly.

So the package for the allowances will be tremendous. We have to see the limitation of the government also. The government cannot give and throw away and spend all of its money on employees. It has to keep something for development purposes as well. We have taken full care on that part and have rationalised on the basis of the applied formula which was given by the employees themselves. We worked out the rates on the basis of that very formula, and we also used the rates of basic needs such as flour, cooking oil etc.

The other important thing we have done is to do away with grade pay. We have given a very transparent and simple matrix for civilians and the defence forces. The defence forces should not be disappointed; they have been given the highest benefits. The chiefs of the armed forces here now are as well-paid as those in the US or the UK. I would also like to dispel the notion that we have not given them the non-functioning upgradation. All in all, it was a very rational and transparent report.

Is there also a proposal to scrap a large section of the allowances going ahead? Can you shed more clarity on this?

I read in the newspapers that the government has appointed a committee which will review the allowances. The government has the liberty to decide that; if it can meet the allowances component along with the pay package within their budgetary proposals, then it’s good. It is for them to increase or decrease the allowances, because it is a significant additional burden for the government. The total package is ₹1.02 lakh crore. With the allowances that are being considered, the burden on the government can increase further.

Allowances are a variable thing. It depends upon a person’s personal pay. They have been adjusted in the past at 15-20 per cent of their basic pay, so it can vary. The total list and package on allowances can still exceed what the government can do; so it is up to them to decide what part of it can be done within the limitations of the budget constraints.

Another thing that I want to strongly highlight is that we have given One Rank One Pension to all civilians. The 52 lakh-strong group of pensioners will benefit immensely with this OROP basis. A civilian who retired 10 years back will be getting the same pension as a civilian who retires today at the same rank. That is a great boost to the pensioners.

Are you in favour of gradually scrapping off many of these allowances or do you think they should be continued in the form as they are?

We have rationalised allowances. Originally, there were a large number of allowances, over a hundred. Many of these small, petty allowances have been subsumed into other allowances. For example, small allowances for hair-cutting, shoe-polishing, or for something like soaps. These have been done away with and subsumed into the dress allowance. There are other allowances which have outlived their utility; these have been done away with.

Please do remember, however, that allowances are a very important part of the pay structure and we have taken care of that. We chose to rationalise them. There were some which were 100 years old — allowances of ₹10 or worse still 50 p or 25 p. These are certainly outdated. We have subsumed them and given them a better package.

Could you please give some insight into the study that was undertaken to arrive at the pay for the lowest rank? This has led to considerable debate when compared with the private sector. The entry level pay is significantly higher for government employees, which you have noted. But then as you go higher up and reach the top, it inverts and you reach a point where the private sector pays much more than the highest levels of government.

We had undertaken a study along with IIM-Ahmedabad. Their reports show that entry-level employees, non-gazetted employees, are far better paid than their private sector peers. Apart from the IIM-A study, we ourselves sent officers to get a proper picture on this. These studies show that the pay package of government servants are far, far, better than private sector employees. As an individual driver in Delhi, you will not get more than ₹10,000-14,000. But within the government sector, a driver will get more than ₹20,000 or even ₹22,000-25,000 per month. In addition to that, they could get over time. Today, government service is much sought after.

And as far as the pay for the higher echelons of the government is concerned, you are right — that is lower than what one gets in the private sector.

In terms of the fiscal impact, if the allowances get added, will that put considerable strain on the government’s numbers for the year? Then there’s also the question of what this does to inflation. On the flip side, the government also stands to benefit in the way that while it gives out ₹1 lakh crore, around 20 per cent is to come back by way of taxes.

The allowances could add a significant burden on the exchequer. In addition to that, allowances are very difficult to calculate. We can only approximately estimate the numbers because it varies with the basic salaries of every individual. Some allowances are specific, but others have been made percentage-wise. Those will differ. And so the government will have to make an approximate calculation of those allowances.

The exact amount will be difficult to work out. But in any case, it will not be more than the total amount of the pay package. It will perhaps be half of the pay package as is roughly estimated. But, definitely, the allowances will make a dent on the exchequer.

Secondly, it’s bound to have an inflationary effect, because people will have more money in their hands, so naturally their purchasing power will increase. Their ability to save will also be affected. On the government’s side, it will also benefit from the taxes. Some of these people who were earlier outside the tax net will suddenly come inside the tax net.

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