B. S. Raghavan

It is a puzzle why the Central Cabinet chose to rush in with the announcement of the Sixth Pay Commission when the Central and the State finances are deeply dented, implementing the previous panel's recommendations.

Anyone watching the TV channels and having at heart the country's financial stability and the lot of the millions struggling below the poverty line would have been revolted by the cat-with-the-cream look and the ear-to-ear grin on the faces of the office-bearers of the associations of the Central Government employees and their political patrons while greeting the Government's announcement of setting up the Sixth Pay Commission (SPC).

But it is a safe bet that, other than government servants, the rest of the population will not exactly be in raptures over the fact of the Government being poorer by nearly 90 per cent of its revenues every year in the form of dollops disproportionate to the output handed to its 33 lakh employees.

The drain does not stop there: The 1.35-crore employees of all the 28 State governments too have succeeded in their indefensible demand for parity with the salary structures proposed by the Central Pay Commission, although the scope and nature of their functions are no whit comparable to those of their Central counterparts.

Let the facts speak for the catastrophic impact of the Fifth Pay Commission (FPC): The most conservative estimate of the Centre's outgo on salaries, allowances and pensions is a 100 per cent jump from Rs 21,885 crore in 1996-97 to Rs 43,568 crore in 1999-2000. Credible sources have called this an underestimate and come out with figures around Rs 60,000 crore (Mr K. P. Geethakrishnan, former Chairman, Expenditure Commission) and Rs 100,000 crore (The Economic Times).

This excludes the havoc wrought on the already parlous finances of the State governments which saw their establishment expenditure soar from Rs 51,548 crore to Rs 89,813 crore between 1997 and 1999, resulting in the acute financial distress of 13 States which had no money to meet their obligations. In terms of GDP, the emoluments (including pension) of employees rose from 1.6 per cent of GDP in 1996-97 to 2.3 per cent in 1999-2000 in the case of the Centre, and from 3.8 per cent to 4.7 per cent in the case of the States (Chief Economic Adviser, Dr Shankar Acharya, writing in the Economic and Political Weekly, April 20, 2002)

Opening the flood gates

To be fair to the FPC, it did not want the Government to sanction the increases straightaway. It had laid down four eminently salutary pre-conditions to be met by the Government before it gave effect to the revised pay scales:

(1) drawing up and implementing a plan for the phased reduction of the personnel by 30 per cent within a period of ten years;

(2) abolishing the 30,000 vacant posts;

(3) simplifying and bringing down the pay scales from 51 to 34;

(4) devising and enforcing criteria and standards of output and service delivery.

Unfortunately, the employee unions and associations raised such a big howl of protest that the Government threw the conditions to the winds and meekly opened the floodgates of financial profligacy.

No decision of the Government in recent memory has faced such opprobrium from so many quarters (except the government employees) as the implementation of the FPC without thought to the chaos it was bound to cause. The World Bank named the FPC as the "single largest adverse shock" to India's financial system, and drew attention to the " pronounced imbalance in the skills mix since 93 per cent of the civil service comprised Class III and Class IV employees for both the Centre and various States."

Elaborating on this, the Bloomberg column said: "Low-skilled government employees in India make almost four times as much as their counterparts in private industry.... They enjoy the added benefit of wage indexation, which protects their pay against inflation.

A 2001 census of federal-government employees showed that low-skilled workers accounted for 96 per cent of the total.

Adding state-level bureaucracies, more than 20 million employees will see their pay going up — at a time when most of them are already overpaid compared with the private sector. Why should taxpayers pay more to cleaners who don't clean and police constables who don't police?"

Keeping all this in mind, the Twelfth Finance Commission also deprecated the practice of appointing Pay Commissions every 10 years, whereby the Government on its own volition became a party to a wage explosion and cost-push inflation reducing its development programmes to a shambles.

The Secretaries Committee, headed by the Cabinet Secretary, had cautioned against setting up the SPC on the ground of the additional burden proving unbearable. Many State governments are also said to be averse to the idea, although they cannot express their unhappiness openly.

Disastrous effect

It is a puzzle why the Central Cabinet chose to rush in with the announcement at this juncture when the Central and the State finances are in disarray thanks to the deep dent made by the FPC.

Surely, a Government of which such renowned economists as the Prime Minister, Dr Manmohan Singh, the Finance Minister, Mr P. Chidambaram, the Vice-Chairman of the Planning Commission, and the Chairman of the Council of Economic Advisers, Dr C. Rangarajan, form a part could be expected to be aware of the disastrous effect of the SPC to the extent of adding a whopping Rs 20,000 crore (at the very least) to the wage bill at the Centre.

Undoubtedly, the pressure of the Left Parties propping up the Government from the outside and the thought of the advantage of the timing of the action on the SPC report to coincide with the run-up to the election to Lok Sabha in 2009, must have weighed heavily, pushing aside the consideration of possible administrative and financial paralysis resulting from such a course. The situation can be retrieved partially by the Government doing two things:

(1) choosing as the chairperson and members of the SPC distinguished professionals experienced in public finance and capable of applying their minds in an independent and dispassionate manner to the issues involved; and

(2) making it clear to the employee associations, trade unions and the Left Parties now itself that the implementation of the Commission's recommendations will be strictly contingent on their agreeing to, and cooperating in, putting through measures for downsizing and enforcing performance criteria as stressed by the FPC. If they are true to themselves, they will realise that this is a paramount duty they owe to the poor and disadvantaged millions of the country.

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