Seventh pay Commission

In the heyday[hey,dey(peak,जमाना)] of Indian socialism, the perception of government was benign[bi'nIn(kind,दयालु)].In today’s climate of liberalisation, the government is viewed with hostility[hós'ti-lu-tee(unfriendly,विरोधी)].That must explain the negative reaction both in the media and amongst the public at large to the increases in pay for Central government employees recommended by the Seventh Pay Commission (SPC).

The pay hikes are modest —  Do we want to run the government — which comprises not just civil servants but the police, armed forces, nurses, doctors, regulators and academics — at all? Or have we persuaded[pu'sweyd(convince,मनाना)] ourselves that all of the government is simply money down the drain?

The SPC’s figures has a rigorous[ri-gu-rus(exact,सही)] basis for setting pay in government. It arrives at a figure for minimum pay in government with reference to norms laid down by the 15th Indian Labour Conference (ILC) in 1957. The ILC had said that the minimum wage should cover the basic needs of a worker and his family, that is, a spouse[spawz(partner,साथी)] , and two children who are below the age of 14.

Based on these norms, the SPC arrives at a minimum wage of Rs. 18,000 for a government employee. This is 2.57 times the minimum pay in the Sixth Pay Commission. The increase over the projected pay on the current basis as of January 1, 2016 is 14.3 per cent. This is the second lowest increase recommended by any Pay Commission since the first one, and it is way below the 54 per cent increase following the last one.

So far as the impact on government finances is concerned, the SPC numbers provide a stream of good news. First, the impact of the pay hike on the Central government (including the railways) will amount to 0.65 per cent of GDP. This is less than the impact of 0.77 per cent of GDP on account of the Sixth Pay Commission.

Second, the impact on the Central government (excluding Railways), which is what matters when it comes to the Union budget, is 0.46 per cent of GDP. This is a stringently[strin-junt-lee(strictly,सख्ती)] one-off impact. The correct way to view it, therefore, would be to amortise it over a period of, say, five years. The annual impact then is 0.08 per cent of GDP. The impact on the fiscal at the central level is barely discernible[di'sur-nu-bu(noticeable,सुस्पष्ठ)].

Pay, allowances and pension (PAP) as a proportion of government expenditure has been declining sharply. In 1998-99, PAP was 38 per cent of revenue expenditure. The SPC estimates that this figure has fallen to 18 per cent in 2015-16. (It will go up to 22 per cent in 2017-17 consequent[kón-si-kwunt(resultant,परिणामस्वरूप)] to the SPC award, but will decline thereafter, as pay grows at a lower rate than government expenditure).

Even in terms of numbers, India’s central bureaucracy (including the Railways but excluding the armed forces) has neither been increasing in recent years nor hugely bloated in absolute terms. The number of employees grew to a peak of 41.76 lakh in 1994. It has declined since to 38.9 lakh in 2014.  Excluding security and commercial functions, the total central employment is just 4.18 lakh. “The ‘core’ of the government…”, the SPC report notes, “is actually very small…”
The number of personnel per lakh of population in India was 139 in 2014, way below the figure of 668 for the U.S. India’s bureaucracy needs not so much downsizing as right-sizing — we need more doctors, engineers, IT specialists, tax experts, judges, and so on.

This time round, the Finance Ministry insists that it will stick to its fiscal deficit target for 2016-17 after providing for the SPC pay hike. If it does so, the reduction in fiscal deficit will be contractionary[kun'trak-shun(compression,shortening,संकुचन)] . Hence, the pay hike will not lead to economic expansion in the aggregate.

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