Recommendations no 'big drain' on exchequer
V N Alok, November 29, 2015
Article 309 of the Constitution empowers Parliament and state legislatures to regulate the recruitment and conditions of service of persons appointed to public services and posts in connection with the affairs of the Union and state governments. Such proviso also gets support from Article 73 and the amended Article 312.
Hence, the government frames recruitment rules for public servants and constitutes pay commissions every 10 years to examine and review the principles which govern the structure of their pay and allowances. The commission is expected to recommend changes in the pay and allowances of public servants to promote efficiency and accountability.
Against the backdrop, the Seventh Pay Commission (SPC), the latest in the series, submitted its report, for the first time, well within the time frame. This enables the government to make appropriate changes in the Budget in the very first year of its implementation. It may be noted that the revised pay will be implemented with effect from January 1, 2016. It also attracted what can be called “conventional critique” from the media which often describe them as “bonanza for government employees”, “santa for babus” etc. In addition, a few experts are quick to call it a “big drain” to government finances.
These perceptions are influenced by criticisms rightly made when its predecessor the Sixth Pay Commission submitted its report on March 24, 2008, so that the government in power could offer a pay hike and huge arrears accumulated since January 1, 2006, just before the general election in the year 2009. In contrast, the SPC could be implemented fully or partially by the new government in the second year of its five year tenure. The quick implementation would prevent negative fiscal impact on government finances. Slower the implementation, greater will be the arrears.
The “conventional criticism” of SPC could have been avoided for the following reasons. Firstly, the SPC made rigorous analysis to arrive at a figure of minimum pay in government i.e. Rs 18,000/- per month, which is based on Dr Wallace Aykroyd–a well known nutritionist–formula adopted in the 15th session of the Indian Labour Conference, 1957. It safely argued that the minimum wage should be need based and should ensure the minimum needs of a standard working class family, comprising a spouse and two children, below the age of 14.
Minimum food requirements are calculated on the basis of a net intake of 2,700 calories. The SPC considered additional factors, including clothing, housing, primary education, medical treatment, recreations, festivities etc. The SPC has provided detailed computations in the chapter on “Determination of Minimum Pay”. It is difficult to disagree with the arguments.
Further, this is just a 2.57 times increase over the previous minimum pay, the second lowest increase by any pay commission since independence.
Secondly, the fiscal impact of SPC on government finances will also be modest and is measured as 0.65 per cent of the GDP, which is far below the corresponding number of Sixth Pay Commission, i.e. 0.77 per cent of the GDP. If we exclude the Railways which presents its own budget and pays salaries from its own resources, the number comes down to 0.46 per cent of the GDP. The finance and railway ministers will barely see this number as a challenge.
Thirdly, a portion of the salary hike will come back to the government in the form of taxes. Hence, the burden will be less than what has been showcased. Moreover, the enhanced tax collection on personal income tax will lead to higher devolution to the states particularly after the 14th Finance Commission recommendations. This will ease the task that state governments will perform while adopting SPC for their employees.
National Pension System
The SPC recommends a revised pension system for civil servants, including personnel from the armed forces and central armed police forces (CAPF), who have attained superannuation before January 1, 2016. This could bring parity between pensioners of the past and present for the same length of service in the same pay scale. An ombudsman is also recommended for redressing individual grievances relating to the National Pension System.
The SPC has dispensed with the present system of pay bands and grade pay and recommends designing a new pay matrix to ensure “equity” or “equal pay for equal work”. Grade pay has been subsumed in the pay matrix. This could lead to a number of anomalies which will be the biggest challenge before the implementation cell created in the Department of Expenditure immediately after the submission of SPC report.
The SPC has abolished 52 allowances and another 36 allowances as separate identities, but merged either with an existing or newly proposed allowance. risk and hardship allowance/matrix has been strengthened. It will be interesting to see the impact of these proposals in the working of employees in general and defence personnel in particular.
In the wake of the SPC, the biggest challenge before the Narendra Modi government will be to inspire civil servants and encourage them to take bold and speedy decisions without fear.
(The writer is an associate professor at the Indian Institute of Public Administration, New Delhi. Views are personal)
Hence, the government frames recruitment rules for public servants and constitutes pay commissions every 10 years to examine and review the principles which govern the structure of their pay and allowances. The commission is expected to recommend changes in the pay and allowances of public servants to promote efficiency and accountability.
Against the backdrop, the Seventh Pay Commission (SPC), the latest in the series, submitted its report, for the first time, well within the time frame. This enables the government to make appropriate changes in the Budget in the very first year of its implementation. It may be noted that the revised pay will be implemented with effect from January 1, 2016. It also attracted what can be called “conventional critique” from the media which often describe them as “bonanza for government employees”, “santa for babus” etc. In addition, a few experts are quick to call it a “big drain” to government finances.
These perceptions are influenced by criticisms rightly made when its predecessor the Sixth Pay Commission submitted its report on March 24, 2008, so that the government in power could offer a pay hike and huge arrears accumulated since January 1, 2006, just before the general election in the year 2009. In contrast, the SPC could be implemented fully or partially by the new government in the second year of its five year tenure. The quick implementation would prevent negative fiscal impact on government finances. Slower the implementation, greater will be the arrears.
The “conventional criticism” of SPC could have been avoided for the following reasons. Firstly, the SPC made rigorous analysis to arrive at a figure of minimum pay in government i.e. Rs 18,000/- per month, which is based on Dr Wallace Aykroyd–a well known nutritionist–formula adopted in the 15th session of the Indian Labour Conference, 1957. It safely argued that the minimum wage should be need based and should ensure the minimum needs of a standard working class family, comprising a spouse and two children, below the age of 14.
Minimum food requirements are calculated on the basis of a net intake of 2,700 calories. The SPC considered additional factors, including clothing, housing, primary education, medical treatment, recreations, festivities etc. The SPC has provided detailed computations in the chapter on “Determination of Minimum Pay”. It is difficult to disagree with the arguments.
Further, this is just a 2.57 times increase over the previous minimum pay, the second lowest increase by any pay commission since independence.
Secondly, the fiscal impact of SPC on government finances will also be modest and is measured as 0.65 per cent of the GDP, which is far below the corresponding number of Sixth Pay Commission, i.e. 0.77 per cent of the GDP. If we exclude the Railways which presents its own budget and pays salaries from its own resources, the number comes down to 0.46 per cent of the GDP. The finance and railway ministers will barely see this number as a challenge.
Thirdly, a portion of the salary hike will come back to the government in the form of taxes. Hence, the burden will be less than what has been showcased. Moreover, the enhanced tax collection on personal income tax will lead to higher devolution to the states particularly after the 14th Finance Commission recommendations. This will ease the task that state governments will perform while adopting SPC for their employees.
National Pension System
The SPC recommends a revised pension system for civil servants, including personnel from the armed forces and central armed police forces (CAPF), who have attained superannuation before January 1, 2016. This could bring parity between pensioners of the past and present for the same length of service in the same pay scale. An ombudsman is also recommended for redressing individual grievances relating to the National Pension System.
The SPC has dispensed with the present system of pay bands and grade pay and recommends designing a new pay matrix to ensure “equity” or “equal pay for equal work”. Grade pay has been subsumed in the pay matrix. This could lead to a number of anomalies which will be the biggest challenge before the implementation cell created in the Department of Expenditure immediately after the submission of SPC report.
The SPC has abolished 52 allowances and another 36 allowances as separate identities, but merged either with an existing or newly proposed allowance. risk and hardship allowance/matrix has been strengthened. It will be interesting to see the impact of these proposals in the working of employees in general and defence personnel in particular.
In the wake of the SPC, the biggest challenge before the Narendra Modi government will be to inspire civil servants and encourage them to take bold and speedy decisions without fear.
(The writer is an associate professor at the Indian Institute of Public Administration, New Delhi. Views are personal)
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