Money for nothing? DNA, 30th Ocotber 2007

The Sixth Pay Commission will raise government salaries. What about cutting the flab?
The Prime Minister was critical of the pay packages of corporate honchos some time ago and a debate on the subject was ignited. Now there is news that the Sixth Pay Commission has something to say about pay structures in the government sector, with the thrust being unidirectional. Quite naturally there is umbrage, given the mindset about the functioning of the public sector.
The main objective of a Pay Commission, broadly defined, is to revise the pay structure of government employees with every decade; and the justification, among other factors, is to establish some kind of parity with the private sector. The impact of the past Pay Commissions has been manifold — they have reduced the incentive for the better candidates interested in joining the bureaucracy, made lower level government staff far better paid than their private sector counterparts, with no accountability, and put the central and state government finances in jeopardy.
The Fifth Pay Commission, which was implemented in 1997, recommended an increase in the total benefits for central government employees, which automatically translates into higher packages for state-level employees. When salaries go up across the board, the first victim is the fiscal deficit, as expenditure goes up with no corresponding increase in revenue.
In the private sector, pay hikes are related to profit and performance, but when it comes to the government — since there are no profits and the performance system is cloudy — there is no way to quantify the net gain.
To reduce this burden, the Fifth Commission had sought to reduce the total size of the bureaucracy by 30 per cent over a ten-year period and to abolish all unfilled positions, numbering about 350,000, in 1996.Downsizing, computerisation and transfers were spoken of. However, as expected, while the pay increases were instantaneous, the job cuts did not materialise. The Commission recommended contractual assignments; this was implemented only for retired personnel, while regular employees continued to retain their tenures.
The Fifth Pay Commission involved an additional outlay of Rs53,000 crore to the government and was termed by the World Bank as the ‘largest single economic shock’ for India.
In fact, in 2000, 13 states did not have the money to disburse the salaries of their employees!

The Sixth Pay Commission will cover around 4.5 million central government employees involving an expected additional outlay of Rs20,000 crore for the government.
But should there be an enforceable obligations charter for such recommendations? The central government per se does not make profits and so it remains a debit item.
But enhancing efficiency can reduce the overall cost structure that should be linked to these pay hikes.
In the private sector there is a pay-performance payoff, which needs to be put in place in government functioning, too.
The issue that arises is how obligations can be met, along with pay increases in government jobs.
Instead of getting into the micro numbers for various components of the salary, the Commission should have been more innovative in devising the obligation scales.
Ideally, the higher salary hike allocation for every department should have been linked with the number of staff to be laid off or redeployed.
In addition, the performance-linked pay should have been defined at each and every level for various departments.
Also, a definite plan for dealing with non-officials is essential, since the ratio of officers to clerks/peons/hamals could go up to 1:5.
It is agreed today that at the higher level, officials are paid less for the work they do, while at the lower level, where the flab lies, it is the other way around.
Instead of making these amendments, there are fears that the Sixth Commission will very likely do what the Fifth Commission did, later pleading helplessness at being able to implement only part of the package.
To conclude, it is worth recalling John Maynard Keynes, who at the time of the Great Depression had espoused higher government expenditure even on worthless jobs like digging up holes to fill them up to raise demand in the country by offering money to spend.
Pay Commissions’ largesse has often turned out to mimic such policies, where people are paid more for moving files or tea cups. Ironically, a larger government administration also gets reflected in the GDP of the country under the service sector and provides valuable purchasing power to people.
How does this sound as the ultimate clinching argument?