NOVEMBER 25, 2015

By Naresh Minocha, Our Consulting Editor

"THERE are various grounds, Sir. One such ground is that the financial implication is enormous. Then there is the question of weighing the different points of view and considering whether it would not be better to spend the resources for development purposes under the second - Five Year Plan rather than to raise the salaries now."

That was Deputy Minister for Finance, B.R. Bhagat, in Nehru Government spurning the demand to set up second Central Pay Commission (CPC) in Parliament on 29nd February 1956.

He continued: "In fact, as a result of the implementation of the recommendations of the last (1st) Pay Commission regarding salaries, bonus, medical facilities, housing etc. the financial implication was to the tune of Rs. 30 crores. And there is nothing new that has happened. Even on the basis of the consumer price index or other economic indicators, there is no reason for the appointment of such a Commission."

Pressured further by a belligerent member from the Opposition Benches, Mr Bhagat articulated the Government's reluctance: "There are various reasons-price index and other indicators. But taking a long-term view, once the Commission is appointed and the recommendations are made, it will be difficult for the Government to resist such recommendations."

Nehru Government ultimately buckled under the pressure from trade unions: It constituted the 2nd CPC in August 1957.

Over the next 60 years, successive Governments failed to resist pressure from trade unions, which have transformed governments and its appendages into heavens of prosperity and job security.

The ruling political alliances turned deaf ears to the advice from Finance Commissions and other entities against setting up of pay commissions to upgrade pay scales after every 10 years.

It is no wonder then that the annual burden resulting from implementation of respective CPC award on national exchequer has risen from Rs 30 crore in 1947-48 (Ist CPC) to Rs 1,02,100 crore in 2016-17 (7th CPC). Modi Government's approval in the latest case is certain if the initial response of Finance Minister Arun Jaitley is taken as a valuable cue.

The minimum monthly wage has increased by from Rs 20 in 1946-47 to Rs 55 (1st CPC) and from Rs 7000 at present to Rs 18000 recommended by 7th CPC (deemed here as implemented) during this 70-years span.

The computation of minimum or maximum wages does not give a correct and complete picture of the tangible and intangible benefits a Government employee enjoys. For this, one has to rely on cost to government (CTG), which is akin to cost to company (CTC) that private sector uses in working remuneration for its employees.

Unfortunately, 7th CPC has made a casual and passing reference to CTG, which is crucial to dispel the notion that Government employees are inadequately compensated as compared to private sector employees.

It has nevertheless given a peek into the issue by citing the findings of a study that it assigned to Indian Institute of Management, Ahmedabad (IIMA).

The Study discovered that the total emoluments of a General Helper, who is the lowest ranked employee in the government is Rs 22,579, more than two times the emoluments of a General Helper in the private sector organizations surveyed at Rs 8,000- Rs 9,500.

It is no wonder that hordes of post-graduates recently applied for job of peons in State Governments.

As a follow-up to 7th CPC, the Government must commission a comprehensive and rigorous comparative study on wages in government, public sector and private sector on the cost to employer.

This might well awaken Government's conscience to give a fair deal to outsourced and contracted manpower that is exploited both by the Government and the manpower supply contractors. No one has yet thought of a pay commission for an army of such outsourced and ad hoc workers, doctors, teachers, scientists, etc.

Reverting back to fiscal concerns, an internal study by the Fourteenth Finance Commission (FFC) noted that the Union Government's pay and allowances bill more than doubled for the period 2007-08 to 2012-13, from Rs. 46,230 crore in 2007-08 to Rs. 1,08,071 crore largely after implementation of 6 th CPC award. The per employee annual salary (excluding defence) shot from Rs. 1,45,722 to Rs. 3,25,820 over this period. The share of expenditure on pay and allowances in revenue expenditure (net of interest payment, pensions and grants-in aid) increased from 11.8 per cent to 13.1 per cent during the period.

The latest data recorded in 7th CPC report shows that the expenditure per capita on pay and allowances for civil Central Government personnel was Rs 3.92 lakh per annum in 2012-13.

One can safely surmise that this figure would more than triple, if all benefits including retirement benefits and job security are included in CTG computation.

CPC recommendations invariably results in clamour from employees of State governments for extension of award to them. After prolonged agitations, States implement CPC award with or without modifications with a few of them constituting their own pay panels.

According to FFC, salary expenditure is one of the key components of committed expenditures of State Governments. Salary bill constituted 39.2% of combined revenue expenditure (CRE) of all States in 2011-12. Similarly, expenditure on pension accounted for 12.3% of CRE.

As put by FFC, "most States could not fulfill the norm of salary expenditure not exceeding 35 per cent of revenue expenditure (excluding interest payments and pensions), adopted by the FC-XIII in its projections."

The ‘Me-too' chorus gains currency with central and State public enterprises, public sector banks and other such entities joining the pay revision bandwagon.

The private sector, especially the unorganized units, small and medium enterprises, is ultimately forced to revise the employees' remuneration to match or improve upon the revised salaries in the Government sector.

Thus, the total impact of CPC is not limited to additional budgetary burden on the Centre but is all-pervasive and long drawn-out over the entire economy.

The economy is thus caught in the vortex of the Union Government-induced cycle of wages hikes, which result in inflation, which in turn, contributes to fiscal deficit, which in turn aids inflation. This necessitates increase in wages and a restraint on economic growth. And the mega whirlpool goes on and on.

Indeed, the concern for rational allocation of scarce resources, national development and fiscal prudence has given way to spoils system sustained by successive regimes to appease sections of society that can flex muscles or are perceived as vote banks.

There is no minister in the Modi Cabinet to turn the salaries hike issue on its head as Finance Minister Morarji R. Desai did in February 1960 while fielding criticism over employees' dissatisfaction with recommendations of 2nd CPC including a minimum monthly salary of Rs 80.

Participating in a debate on CPC, Mr. Desai wondered "how these two million servants of Government, who are public servants, how they should be treated in relation to the large bulk of the people who live in this country. We must compare them with a similar class of people, the other two hundred million people of this class, who do not get anywhere near this wage."

He observed: "Because Government can levy taxes on the people and can increase its budget, should it therefore be that the budget should be utilized only for paying the public servants and not for public welfare? Is the payment to or the remuneration of the public servants the only public welfare that Government, is supposed to do? Can this be agreed to? That cannot be the main purpose. But the purpose is to see that the moneys at the disposal of Government are so spent that the income of the people is increased, that production is increased, that living standards go up all around. If this is agreed to, then the expenditure on public servants should be the minimum."

If Morarji Bhai (who later became PM in Janata Govt) were alive as a mentor, he would have expressed his exasperation at the Government hiking imposts or levy new ones the latest being Swacch Bharat cess, which is in addition to money coughed by companies in building toilets across the country.

He would have disapproved the concept of forcing companies to become instruments of State in fulfilling its constitutional obligations towards citizens. Factor in here statutory corporate social responsibility introduced last year over and above education cess, secondary education cess, numerous labour welfare cess, various taxes and surcharge.

Like Morarji Bhai, FFCs has struck the wisdom chord in its report that was released in February 2015. It says: "on matters that impact the finances of both the Union and States, policies ought to evolve through consultations between the States and the Union. This is especially relevant in the determination of pay and allowances, where a part of the government itself, in the form of the employees, is a stakeholder and influential in policy making."

FFC observed: "A national view, arrived at through this process, will open avenues for the Union and States to make collective efforts to raise the extra resources required by their commitment to a pay revision. More importantly, it would enable the Union and States to ensure that there is a viable and justifiable relationship between the demands on fiscal resources on account of salaries and contributions to output by employees commensurate with expenditure incurred. In this regard, we reiterate the views of the FC-XI for a consultative mechanism between the Union and States, through a forum such as the Inter-State Council (ISC), to evolve a national policy for salaries and emoluments."

Unfortunately, Prime Minister Narendra Modi has not been able to spare time from his busy foreign travel schedule to reconstitute ISC, leave aside calling its meeting.

What FFC did not record was the fact that the opportunity for formalizing a national consensus was frittered away at another Centre-States forum, National Development Council (NDC) in April 1993. At that time, it discussed the report of NDC Sub-Committee on Expenditure chaired by Odisha Chief Minister Late Biju Patnaik.

NDC, however, did not proceed with the task of framing national wage policy following opposition from trade unions to certain recommendations of austerity panel. They also demanded that austerity must begin from the top.

While Government of the day takes pride in hiking wages, it is lackadaisical in implementing reforms-centric recommendations of both CPCs and FCs.

Take the case of introducing a modest innovation to provide variable income to staff linked to their performance.

In August 2012, the Government admitted in Lok Sabha that successive Pay Commissions, starting from Fourth Pay Commission have recommended rewarding better performance and some form of performance related reward. The Fourth Central Pay Commission had recommended variable increments for rewarding better performances. The Fifth Central Pay Commission had recommended the scheme of performance related increments for all Central Government employees where an extra increment was to be paid to the exceptionally meritorious performers and the under-performers were to be denied the regular/normal increment.

The Government has accepted in principle the recommendation of 6th CPC for introduction of a Performance Related Incentive Scheme (PRIS) in the form of pecuniary benefit over and above the regular salary, based on the targeted performance and performance parameters, out of the Non-Plan budgetary savings, for the Central Government employees.

In July this year, it disclosed that it has not yet implemented PRIS. It is high time both the top brass and employees in Government pull up socks and improve their productivity in keeping with numerous benefits they relish.

It is here pertinent to remind the Government and trade unions about what late Biju Patnaik stated in November 1991. He claimed that half of the State employees were "useless".

Addressing a press conference after his return from a foreign tour, Mr. Patnaik quipped: "If I throw half the Government employees out, nothing will change. Work will still go on as usual."