7th Pay Commission – ‘An unjustified pay hike’ - The Hindu
As we brace for another series of Pay Commission-mandated salary
hikes, the question is if it is the best use of government resources.
As public servants get ready to enjoy the New Year’s blessing that the
Seventh Pay Commission is expected to bestow, it may be a time for the
rest of us to look this gift horse in the mouth. The Fourteenth Finance
Commission estimates the cost of the Sixth Pay Commission at over Rs.
90,000 crore annually, since pay and allowances of Union government
employees more than doubled between 2007-08 and 2011-12.
Compare this to
the estimates in the economic survey for the year 2011-12, about Rs.
70,000 crore each for food subsidy, fertilizer and petroleum subsidy and
less than Rs. 40,000 crore for the Mahatma Gandhi National Rural
Employment Guarantee Act. Simply put, the additional Central government
expenditure due to the implementation of the Sixth Pay Commission was
over 40 per cent of the major subsidies. If we take into account the
costs to the State governments, the tab for Sixth Pay Commission
largesse is probably equivalent to all the subsidies provided by the
Central government.
As we brace for another Pay Commission-mandated salary hike, the
question to ask is not whether the government can afford it but if it is
the best use of government resources. Government employees receive
Dearness Allowance (DA) annually to compensate for inflation; they also
receive an annual performance appraisal for promotions, which brings
with it salary increases. So the decadal salary increases under the
Central Pay Commission (CPC) are meant to address inequities in salaries
across different parts of the government, across ranks as well as
between the public sector and private sector. It is the latter that has
provided the greatest justification for salary increases granted under
CPC in the past.
False premise
Dizzying salary packages reported for new Indian Institute of Management
graduates or Indian Institute of Technology graduates funnel a sense of
discontent among public sector employees since it is hard to imagine
any 25-year-old government servant receiving a package of Rs. 40 lakh
per annum. This smoke and mirrors strategy masks several observations
made by the Sixth Pay Commission. First, it noted that the contention of
vast disparities between private sector and government employees was
not borne out by data. The CPC found that compensation to Group C and D
employees in government was higher than that in the private sector; for
Group B it was similar and only for Group A was it lower. Group A
employees form less than 5 per cent of the total Central government
workforce; Group C and D are about 90 per cent. Second, it noted that a
government job offers many other benefits not available in the private
sector and the fear of flight away from public service towards the
private sector is overblown.
“The Fourteenth Finance Commission estimates the cost of the Sixth Pay Commission at over Rs. 90,000 crore annually.”
In spite of these observations, the ultimate recommendations of the
Sixth CPC led to substantial increases in the salary and allowance of
all public servants, first in the Central service and later on in State
governments. A comparison of incomes between private sector employees
and government employees using data from India Human Development Surveys
(IHDS) of 2004-05 and 2011-12 is instructive in understanding the
consequences of the last CPC. These surveys of over 40,000 households
were jointly organised by the National Council of Applied Economic
Research and the University of Maryland. The graphic shows monthly
salaries for men aged 25-59 in 2011-12. Many women work part time as
anganwadi workers
and ASHA workers and hence are excluded from this comparison, but their
inclusion will not change the fundamental results.
The results show that at every single level of education, government
workers are paid more than private sector workers and more importantly,
the public service advantage has increased rather than decreased after
the implementation of the Sixth Pay Commission recommendations. A driver
in government service earns far more than one in private service, but
so does an engineer. This comparison does not include the other benefits
government service provides including PF contributions, housing
benefits, health insurance and, frequently, admission of children to
coveted Kendriya Vidyalayas.
One might say that the problem is not global but is concentrated in
highly skilled positions. Individuals who are highly skilled may be more
likely to choose the private sector. Here only the Union Public Service
Commission can tell us if the qualification of the entering cohort of
the Indian Administrative Service officers is declining, but at a
slightly lower stratospheric level, we see no such evidence. The IHDS
shows that among college graduates with a first class degree, government
service still seems to be preferred. In 2004-05, among the male college
graduates employed in public service, 37 per cent had a first division;
this proportion had increased to 39 per cent by 2011-12. This is not to
say that skill upgradation is not taking place in the private sector,
where the proportion of first class degree holders among graduates has
increased from 28 per cent to 35 per cent, but these figures do not
suggest that government services are suffering on an average; just that
the more qualified individuals are seeking salaried work and moving away
from farming and small businesses benefitting both government service
and the private sector.
“One might say that the problem is not global but is concentrated in highly skilled positions.”
That salary increases will be bestowed by the Seventh CPC is a given.
Whether it will address the real challenge, lower wages for Group A
officers compared to the private sector, and recognise the public
service advantage for the rest of the employees remains questionable.
Let us hope that the Seventh CPC will address the challenge of
government salaries with a scalpel rather than an axe.
(Sonalde Desai is senior fellow at the National Council of Applied
Economic Research and Professor of Sociology at the University of
Maryland. Views are personal.)
