Is the freeze on DA till next June unfair?

The Union Government, on April 23, decided to freeze the hike in Dearness Allowance (DA) that was announced in March 2020 till June 2021. Although the arrears will not be paid during this time and any hike in DA due to revision on July 1, 2021, will consider the previous hikes as well. It was commented that this is inhuman and would bring hardships to government employees

Before we examine their views, let us look at how the salaries of Central government employees in independent India have changed. The Second Pay Commission (PC) in 1959 increased the minimum Basic Pay (BP) to ₹80 and the maximum BP to ₹3,000 with an average of 50 per cent increase over the BP fixed by the first PC.

Continuing the legacy of the British government in India, the first two PCs maintained the ratio of maximum BP to minimum BP at 1:36.

The Third PC, in 1973, increased the minimum BP by 145 per cent to ₹196 from ₹80 although it increased the maximum BP by 17 per cent to only ₹3,500. The ratio between minimum BP and maximum BP was reduced to 1:18 from 1:36 by the Third PC as this was the time when India was aggressively pursuing socialism.

The Fourth PC in 1986 increased the minimum BP by 283 per cent to ₹750 from ₹196 and increased the maximum BP by 129 per cent to ₹8,000 from ₹3,500 and thereby brought down the ratio between minimum BP and maximum BP to 1:11 from 1:18. Once again the socialistic thought of increasing the salary more for lower cadres and less for higher cadres prevailed, although not as bad as in the Third PC.

The Third and Fourth PCs increased the minimum BP of government employees much more than the inflation and the economic development India achieved between 1947 and 1986. As a result, the salary for Group IV and Group III employees of the government reached a level even in 1986 that even if they switch over to the private sector, their remuneration was only to be a fraction of what they would get from government employment.

The Fifth PC recommendations, which were implemented from January 1996, took a stand that the benefits of economic reforms introduced in India since 1991 should get reflected in the revised pay scales of employees too. It evenly increased the minimum BP by 240 per cent to ₹2,550 from ₹750 and the maximum pay by 225 per cent to ₹26,000 from ₹8,000. Although the Fifth PC instructed to reduce the number of employees by 30 per cent, it never happened.

MNC impact

It is indeed true that the Fifth PC increased the salary and pension of employees across the board significantly. However, the arrival of MNCs in India and their hefty pay packages in the beginning years of 21st century, which was not based on socialistic norms but based on value addition an employee brought to the table, attracted technocrats, scientists, engineers and top bureaucrats who had upgraded themselves to take up key roles in MNCs from government services, especially from scientific institutions such as ISRO and DRDO.

India witnessed only the bright side of the private sector and MNCs with their huge salary package till the global economic crisis hit in 2008. Hence the Sixth PC had to be more generous in terms of pay package to the highly skilled employees.

Considering all this, the Sixth PC increased the minimum BP by 175 per cent to ₹7,000 and maximum BP by 208 per cent to ₹80,000. As the ratio of minimum BP to maximum BP was retained at about 1:11, the salary hike for those who have not equipped themselves was also almost on par with those who equipped themselves, which did not augur well for improving the delivery of government administration.

The salary hike by the Sixth PC was extremely competitive for three reasons, even for the higher cadres, let alone lower cadres. The first reason is that the hike per se was so substantial that those who moved to MNCs from government agencies before Sixth PC wanted to come back to government scientific institutions such as ISRO and DRDO.

The second reason is that after the global economic crisis in 2008, the private sector did not increase the salary even to compensate for the huge inflation India witnessed between 2009 and 2014, the second tenure of UPA. The third reason is the extravagant frills for the pensioners that the Sixth PC recommended made pension enormously attractive but causing huge burden to the government exchequer.

In this backdrop, the constitution of one more PC should not have occurred at all. But the unprecedented inflation India witnessed during the UPA-II regime forced the government to increase the DA from 0 per cent in January 2006 to 100 per cent in Jan 2014. With DA reaching 100 per cent, the Modi 1.0 government had no other way than to constitute the Seventh PC.

State finances

The Seventh PC increased the minimum BP by 157 per cent to ₹18,000 from ₹7,000 and maximum BP by over 200 per cent to ₹2,50,000 from ₹80,000. Since almost all the State governments follow the Central PCs in revising their salary and increase of DA as announced by the Union government, the recommendations of PCs dent the finances of the State governments as most of the States have been adding government servants with no restraint. If the Sixth PC pushed the finances of the State governments to ICU, the Seventh PC forced it to use a ventilator for survival.

The upward revision recommended by all the PCs have been applicable for pensions and family pensions too. This, coupled with frills added and increased life expectancy raised the expenditure on pensions much more than the pay itself. One of the frills is that pensioners/family pensioners in the age bracket of 80-84, 85-89, 90-94, 95-99 and 100 plus would get 20 per cent, 30 per cent, 40 per cent, 50 per cent and 100 per cent more pension than their regular pension.

For instance, it was estimated that 48 lakh Central government employees would receive salary to the tune of ₹1.74 lakh crore and 65 lakh central government pensioners (including family pensioners) receive pension to the tune of ₹1.84 lakh crore during FY 2020-21.

A new entrant in the lowest pay scale of government employment receives more salary than a reasonably qualified engineer and Group IV (now Group III) pensioner receives pension on par with the salary of a reasonably qualified engineer working in a well-known company.

This is not to say that the government should backtrack from its commitment to salary and pension. However, if the government will have to pay salary and pension/family pension for 35 years and 30 years respectively, the salary and pension are to be very moderate, which is not the case after the Seventh PC.

The decision to stop the DA rise till June 2021 is to be seen in this backdrop. The undercurrent of all the PCs so far is “Living Wages”. The minimum BP has been fixed liberally based on the Living Wages calculated by the PCs from time to time. Even during ordinary times, a sizeable population of India has not been getting “Living Wages” as prescribed by the various PCs.

In this time of slowdown arising out of Covid-19, it is tough for sections of the population even in developed countries to get “Living Wages”. Given this, is it appropriate to say that the stopping of DA would be unfair to the government employees?

The writer is a Public Policy Analyst

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