The increase in salaries - How the government gives less to its staff

THE Central Government announced a revised pay structure for its employees on the eve of Independence Day. It has been called a “jackpot” for the roughly five million employees of the government. It has also opened the way for an increase in the salaries of the employees of the state governments and university and college teachers. So, in due course, roughly 17 million public sector employees will have their emoluments raised.

When the Sixth Pay Commission recommendations were announced, no one was happy. The armed forces, police officers, bureaucrats, et al, protested against the meager proposed increase in the salaries which was below their expectations, given the prevailing situation in the economy and their requirements. For instance, the armed forces have been pointing to the difficulties in retaining and recruiting the requisite number of officers and specialists like doctors and engineers at the prevailing salaries.

The government has announced an increase over the Pay Commission recommendations. But if the total increase is of the order of 21 per cent on an average (as some reports suggest), then this would hardly mollify the disgruntled groups. They were not seeking about a 10 per cent or 20 per cent hike but demanding a 200 or 300 per cent increase in their emoluments. The government seems to be in a no-win situation.

Those who have characterised the announcement as a “jackpot” or a “bonanza” obviously feel that the government servants do not even deserve what was announced by the pay commission so that the additional amount is even more unfair. This is in contrast to the applause from the same circles when the corporate sector announces annual (not over 10 years) salary increases of 40 or 50 per cent and huge bonuses for its managers. What is involved in the announcement of a pay commission award?

Pay commissions have been set up at 10-year intervals because the salaries of the government servants lag behind the ongoing inflation. The government servants get an annual increment and every six months a dearness allowance (DA) to compensate for the price rise. However, since the compensation is never commensurate with the price rise, real incomes keep falling and the pay commissions are supposed to correct for this decline.

Thus, in-between the setting up of the pay commissions, the government gets a benefit by paying its employees less than what it should have been paying. Further, the pay commissions typically compensate the employees for inflation only at the bottom of their pay scales so that the emoluments of those at senior levels come down to roughly the starting point of their scales and they lose the benefit of the increments earned due to seniority. This is a permanent advantage to the government.

Further, over a period of time, the official rate of inflation has gone out of line with the real inflation. The services sector is now over 60 per cent of GDP but its weight in the consumer price index is only 16 per cent. Thus, rapid increases in school fees, travel, entertainment, etc, are not factored in. As such, the compensation for inflation is only partial. Consequently, the government servants feel that they are not able to maintain their standard of living. But there is something else even more critical.

Salaries in the private organised sector and the emoluments of professionals and businessmen have seen a huge increase. These have become benchmarks for everyone to aspire for. Economic theory tells us that when income differentials widen, there is social discontent. Up to 1991, corporate salaries were capped at Rs 3,12,000 per annum. This cap was lifted and now salaries in the private sector can go into crores with top salaries up to Rs 25 crore. In other words, there has been an increase of around 800 times at the top. The starting managerial salaries are even higher than the salary of top government officials at retirement.

Such huge salary differentials have led to discontent all around. Senior bureaucrats, doctors, pilots, engineers, etc, aspire for leave for the private sector where they can draw 10 times (or more) their current salaries.

It is argued that the government’s budget would be upset by the announcement of the salary increases. Hence these should be moderated. But it is forgotten that the government has all along been getting the benefit of not paying its employees what it should have been paying.

However, the real issue is not the financial burden but corruption, weak governance and poor delivery of public services. The public faces harassment in the courts, public sector hospitals, government offices, etc. Given the low prestige of government employees, the public resents any additional payment to them since they do not even justify the present payment they receive.

While in a limited framework, these are the relevant questions, at a higher plane, one may ask: how legitimate is it for anyone to earn salaries 3.5 times to 35 times the per capita incomes when in 2004-05, 77 per cent of Indians spent Rs 20 or less per capita per day? In other words, less than Rs 3,000 per month for a family of five? It is true that people usually look at those above them and not those below them, but why should the government not take a broader perspective? Why, in terms of reference, is there no point about the relationship of salaries in the country with the per capita incomes which represents the nation’s true paying capacity? If some get a disproportionately high income, it is at the expense of the others.

Not only should we ask how much a poor nation can afford but also who should get what. Does a school teacher or a researcher not deserve more than what we pay someone to sell cigarettes or toiletries or for moving funds around the globe? Should salaries depend on how much power one has in the market or how much the managers are willing to do the bidding of the businessmen or how much political clout one can exercise or on the long run, the value of one’s work to society?

In an economy where black economy is rampant (50 per cent of GDP) and businesses earn large sums of money in illegitimate ways and share a part of that with politicians, consumerism has become rampant. Not only does one see it in five-star hotels or at flashy weddings but also in parliament. The people’s representatives are flaunting their wealth for all to see. The Prime Minister and the President drive around in flashy cars and live a lifestyle worthy of kings of olden days. This has led to a severe demonstration effect with everyone aspiring for consuming more so that none is happy with less or willing to sacrifice for the sake of a common good. The Prime Minister did talk of ostentation in the corporate sector, but he was laughed out of court and fingers were pointed at the politicians, so he never raised the matter again. That is the clout of the elite.

In brief, since the debate on the emoluments of government servants has remained in the narrow confines of the budget or its inflationary consequences, it has missed the main point that it should relate to the country’s worldview (or a lack of it) about equity and social justice. In the 61st year of our Independence, the ongoing debate shows that for the elite, whether in the public or private sectors, the nation is hardly the reference point for action.