Seventh Pay Commission is no ogre
Its recommendations’ impact need not give us jitters because the rise in government wages will amount to only 0.8 per cent of GDP.
The report of the Seventh Pay Commission (SPC) is set to be released soon. The new pay scales will be applicable to Central government employees with effect from January 2016. Many commentators ask whether we need periodic Pay Commissions that hand out wage increases across the board. They agonise over the havoc that will be wrought on government finances. They want the workforce to be downsized. They would like pay increases to be linked to productivity. These propositions deserve careful scrutiny. The reality is more nuanced.
Critics say we don’t need a Pay Commission every ten years because salaries in government are indexed to inflation. At the lower levels, pay in the government is higher than in the private sector. These criticisms overlook the fact that, at the top-level or what is called the ‘A Grade’, the government competes for the same pool of manpower as the private sector. So do public sector companies and public institutions — banks, public sector enterprises, Indian Institutes of Technology (IITs), Indian Institutes of Management (IIMs) and regulatory bodies — where pay levels are derived from pay in government.
The annual increment in the Central government is 3 per cent. Adding dearness allowance increases of around 5 per cent, we get an annual revision of 8 per cent. This is not good enough, because pay at the top in the private sector has increased exponentially in the post-liberalisation period.
Competition for talent
A correct comparison should, of course, be done on the basis of cost to the organisation. We need to add the market value of perquisites to salaries and compare them with packages in the private sector. We cannot and should not aim for parity with the private sector. We may settle for a certain fraction of pay but that fraction must be applied periodically if the public sector is not to lose out in the competition for talent.
A correct comparison should, of course, be done on the basis of cost to the organisation. We need to add the market value of perquisites to salaries and compare them with packages in the private sector. We cannot and should not aim for parity with the private sector. We may settle for a certain fraction of pay but that fraction must be applied periodically if the public sector is not to lose out in the competition for talent.
True, pay scales at the lower levels of government are higher than those in the private sector. But that is unavoidable given the norm that the ratio of the minimum to maximum pay in government must be within an acceptable band. (The Sixth Pay Commission had set the ratio at 1:12). Higher pay at lower levels of government also reflects shortcomings in the private sector, such as hiring of contract labour and the lack of unionisation. They are not necessarily part of the ‘problem with government’.
