Not accepting the recommendations now or even postponing their implementation would have been politically unwise and it could have also dented the government's credibility of fiscal planning, even though a saving of about half a per cent of gross domestic product would have given the much-needed headroom to Finance Minister Arun Jaitley to use the money saved for higher capital expenditure. On his part, Mr Jaitley, however, held out the assurance that even after accepting the Pay Commission's recommendations, the government would meet its fiscal deficit target and, in addition, the extra money in the hands of 10 million families would hopefully result in higher savings or consumption demand - both of which would augur well for the economy. Still, there are risks of rising prices and widening fiscal deficits in states, which as on past occasions would be under pressure to announce similar increases in the pay and allowances of their staff.
There are two more areas of serious concern. One, the government has set up a committee to review the Pay Commission's recommendation to scrap a large number of allowances. It has also been decided that the existing allowances are to continue at the existing rates until the review, headed by Finance Secretary Ashok Lavasa, is completed in four months. This is potentially dangerous as this suggests that the government is implementing the recommendations for higher pay, but deferring those that sought to scrap the allowances. It is reminiscent of past instances of Pay Commission reports, when the government of the day would agree to implement the recommendations on increasing the pay, but shy away from enforcing those for abolishing a large number of government posts. The Seventh Central Pay Commission had recommended that 51 of the 196 allowances should be abolished and 37 others should be subsumed in the existing ones. The government may rue its decision of implementing the pay hike, but deferring the tough recommendation of scrapping allowances. Both sets of recommendations should have been linked and their implementation or deferral should have taken place at the same time to give the government greater negotiating headroom. If the government has to finally go back on its idea of scrapping allowances, it must insist on not giving effect to higher allowances under the new pay scale.
Two, the challenge of a growing size of bureaucracy has once again been ignored. There are no visible signs of the staff strength of government departments going down. Indeed, there are some ministries like the one for skill development, which plans to hire about 2,000 more employees this year. The overall staff strength of the government is set to increase next year. A government that stands by the principle of maximum governance through minimum government would have done well if it had also decided to make the bureaucracy lean.