The seventh pay commission report has numerous recommendations on wages, pensions and other payouts, while saying the projected expenditure as a percentage of gross domestic product (GDP) would be less than what was suggested in the sixth pay commission. Rathin Roy, member of the seventh commission and director, National Institute of Public Finance and Policy, talks with Arup Roychoudhury on the recommendations and the work into making these. Edited excerpts:
What was the thinking behind the pay commission recommendations?
The report is not a complex report. I trust you will appreciate that it makes no game-changing claim. The objectives were to try and address the terms of reference, bearing in mind that the question of paid allowances is a critical part of the overall question of central government effectiveness. Secondly, an attempt to make sure that if there were real or perceived notions of unfairness, then to the extent they came to attention, we would rectify.
The commission has recommended abolition of pay band and pay scales, and replacing them with what is known as a pay matrix. Could you explain that?
It is very simple. Let us take an example and talk about a person who joins today. So you know what grade you are joining, and you join at the bottom of that grade. When you get promoted, you move from wherever you are on that pay band to the next pay band, and so on and so forth. So at any day immediately, anyone joining the government knows when they join the government what they will be paid, and when they are promoted what they will be paid so that makes it easier.
Grade pay was a laudable idea, because they were trying, in the sixth pay commission, to simplify. But a lot of ambiguities had crept into the process and this system of running payments resolves those ambiguities. The hierarchy will be much less ambivalent than it was earlier.
The additional burden of the pay commission recommendations is Rs 1.02 lakh crore, with nearly Rs 74,000 crore impact on the union budget and the rest on the rail budget next year. The total impact, when measured as a percentage of GDP, is 0.65 per cent. Given the tough fiscal deficit target of 3.5 per cent of GDP next fiscal, do you think achieving it is feasible?
As an economist and a member of the Pay Commission, if I did not think it was manageable, I should be sacked. So obviously I think it is manageable for the following reasons: The Finance Minister’s principal task is to ensure that his medium term fiscal targets are met. The pay commission recommendations do impact the fiscal situation. But the Finance Minister does not have to worry about the 0.65 number. If you exclude the burden on railways, since they are expected to pay out of their own resources. So the number he needs to look at is 0.46.
We have estimated the nominal GDP growth to be 11.5 per cent. So with a growth rate of 7.5 per cent, and inflation of 4.5 per cent, we expect the fiscal situation to be in control. These are conservative estimates. Now as far as the railways is concerned, they have to undergo a number of structural reforms. But I think the additional burden on them can be dealt with as well. See, any government that cannot deal with a 046 per cent additional burden on expenditure is not an effective government. I think this is an effective government, and therefore I am confident that we can manage the fiscal numbers.
In my view, it is very important for the Finance Minister to take leadership of the process from now, and not let what i consider to be the bane of Indian administration – poor implementation – affect this commission. Speed is of the essence, the faster you implement whatever award you wish to implement, the less will be the negative fiscal impact on government finances in the future. The slower you are in implementing awards, the greater will be your arrears. I would hope that what the government does is implement the monetary part of the commission speedily. On that front, I am reassured by the statements that I have heard from the authorities. Last time it took them five and a half months. That is way too long.
One of the key recommendations is an OROP type pension system for civil and paramilitary personnel as well. Where did that come from?
What we perceived while talking to paramilitary, defence, and civil personnel, was a desire to ensure clarity in the way in which a retired employee’s pension is calculated. We were asked to consider whether two people who have spent a similar amount of time in their roles immediately before retirement, should be paid the same, irrespective of when they retire. We took these points into consideration and then looked at our terms of reference, regarding pension which says: To examine the structure which governs the structure of pension including revision of pension in the case of employees who have retired prior to date of implementation of the recommendations. Here have tried to apply that principal.
In your dissent note, you spoke in favour of abolishing the financial edge for IAS and IFS officers. Could you take us through that?
I do not reject that IAS is a premier service, and I mentioned that in my dissent note. As a general executive service, they are. My point is that if IAS has a leadership role, then to reflect that role by giving them two increments, in my view demeans the IAS. If you are leader, you are a leader because you demonstrate leadership, or because you are told by people that you are the leader. That leadership does not come by giving you two increments.
IAS officers face hardship yes. But so do income tax and customs officers, to give just an example. I do not think that all IAS officers face hardship, and therefore should get an edge, be accepted. What you could give them is a risk and hardship allowance.
What was the thinking behind the pay commission recommendations?
The report is not a complex report. I trust you will appreciate that it makes no game-changing claim. The objectives were to try and address the terms of reference, bearing in mind that the question of paid allowances is a critical part of the overall question of central government effectiveness. Secondly, an attempt to make sure that if there were real or perceived notions of unfairness, then to the extent they came to attention, we would rectify.
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The third, which we have done particularly with paying allowances, is to try and make the business of paying the employees of the government of India less complex than it was earlier. I don’t think that we have done this in full measure, but I think we have made inroads into the problem, which I am satisfied with.
The commission has recommended abolition of pay band and pay scales, and replacing them with what is known as a pay matrix. Could you explain that?
It is very simple. Let us take an example and talk about a person who joins today. So you know what grade you are joining, and you join at the bottom of that grade. When you get promoted, you move from wherever you are on that pay band to the next pay band, and so on and so forth. So at any day immediately, anyone joining the government knows when they join the government what they will be paid, and when they are promoted what they will be paid so that makes it easier.
Grade pay was a laudable idea, because they were trying, in the sixth pay commission, to simplify. But a lot of ambiguities had crept into the process and this system of running payments resolves those ambiguities. The hierarchy will be much less ambivalent than it was earlier.
The additional burden of the pay commission recommendations is Rs 1.02 lakh crore, with nearly Rs 74,000 crore impact on the union budget and the rest on the rail budget next year. The total impact, when measured as a percentage of GDP, is 0.65 per cent. Given the tough fiscal deficit target of 3.5 per cent of GDP next fiscal, do you think achieving it is feasible?
As an economist and a member of the Pay Commission, if I did not think it was manageable, I should be sacked. So obviously I think it is manageable for the following reasons: The Finance Minister’s principal task is to ensure that his medium term fiscal targets are met. The pay commission recommendations do impact the fiscal situation. But the Finance Minister does not have to worry about the 0.65 number. If you exclude the burden on railways, since they are expected to pay out of their own resources. So the number he needs to look at is 0.46.
We have estimated the nominal GDP growth to be 11.5 per cent. So with a growth rate of 7.5 per cent, and inflation of 4.5 per cent, we expect the fiscal situation to be in control. These are conservative estimates. Now as far as the railways is concerned, they have to undergo a number of structural reforms. But I think the additional burden on them can be dealt with as well. See, any government that cannot deal with a 046 per cent additional burden on expenditure is not an effective government. I think this is an effective government, and therefore I am confident that we can manage the fiscal numbers.
In my view, it is very important for the Finance Minister to take leadership of the process from now, and not let what i consider to be the bane of Indian administration – poor implementation – affect this commission. Speed is of the essence, the faster you implement whatever award you wish to implement, the less will be the negative fiscal impact on government finances in the future. The slower you are in implementing awards, the greater will be your arrears. I would hope that what the government does is implement the monetary part of the commission speedily. On that front, I am reassured by the statements that I have heard from the authorities. Last time it took them five and a half months. That is way too long.
One of the key recommendations is an OROP type pension system for civil and paramilitary personnel as well. Where did that come from?
What we perceived while talking to paramilitary, defence, and civil personnel, was a desire to ensure clarity in the way in which a retired employee’s pension is calculated. We were asked to consider whether two people who have spent a similar amount of time in their roles immediately before retirement, should be paid the same, irrespective of when they retire. We took these points into consideration and then looked at our terms of reference, regarding pension which says: To examine the structure which governs the structure of pension including revision of pension in the case of employees who have retired prior to date of implementation of the recommendations. Here have tried to apply that principal.
In your dissent note, you spoke in favour of abolishing the financial edge for IAS and IFS officers. Could you take us through that?
I do not reject that IAS is a premier service, and I mentioned that in my dissent note. As a general executive service, they are. My point is that if IAS has a leadership role, then to reflect that role by giving them two increments, in my view demeans the IAS. If you are leader, you are a leader because you demonstrate leadership, or because you are told by people that you are the leader. That leadership does not come by giving you two increments.
IAS officers face hardship yes. But so do income tax and customs officers, to give just an example. I do not think that all IAS officers face hardship, and therefore should get an edge, be accepted. What you could give them is a risk and hardship allowance.