Pay more, get more

| Updated on January 22, 2018 Published on November 24, 2015

Taxpayers will not grudge pay hikes for government employees, if these are linked to performance and outcomes

The Seventh Pay Commission’s proposal to provide a 23.55 per cent increase in salaries for 4.7 million government employees and 5.2 million pensioners is relatively modest, going by quantum of pay hikes given by previous commissions. The Sixth Pay Commission had doled out a whopping 40 per cent increase. But percentages can be misleading when looked at in isolation. Government servants get a guaranteed annual increment of 3 per cent, and dearness allowance — variable pay linked to inflation — of around 5 per cent. The fresh increases, payable from January next year, will add an additional ₹1.27 lakh crore (including arrears due) to the Centre’s expenditure next year. However, it does not end here. Pay hikes for central government employees are inevitably followed by matching revisions in pay for State government employees, municipal employees as well as employees of State and central public sector undertakings. Add them all up, and the total outgo of Centre and States mounts to over 5 per cent of GDP, a substantial sum for an economy where nearly a third of the population is below the poverty line. By some estimates, about half of what the Centre gets by way of tax revenue goes towards salaries and pensions. With the Commission also recommending the ‘One Rank, One Pension’ principle for all civilian employees, pension outgoes threaten to match or exceed salary spends. Though there is a potential upside by way of increased consumption expenditure and enhanced household savings — ratings agency India Ratings estimates these at 0.39 per cent and 0.26 per cent of GDP respectively — the downside is a spike in retail inflation, something that has been seen in the years following previous pay commission payouts.

This is clearly unsustainable in the long term. While the Centre has always been quick to accept and implement recommendations on pay increases, it has been far less proactive in tackling the issue of reforming the structure of administration and providing better governance delivery. Despite growing digitisation and the thrust on e-governance, the government has essentially not changed the way it works. About 85 per cent of government employees fall in the C and D categories — support staff such as peons, drivers and administrative and clerical assistance. While some form of performance evaluation has been introduced — the Seventh Pay Commission has even recommended introducing performance-linked variable pay — the system is flawed, and unduly weights process over outcomes.

Successive pay commissions have addressed the issue of absolute pay differences between private and public sector. On a median pay basis, those at the bottom get much more than private sector counterparts, while pay at the top is quite comparable, given the additional perks of security of tenure and lifelong pension and medicare civil servants enjoy. Taxpayers will not wish to restrict the government’s ability to attract talent. But they will question the logic of pay without performance.

Published on November 24, 2015
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