Government employees have become the favourite whipping boys of media critics. The latest imposts of the finance minister have been sought to be justified mainly on account of the increased largesse to the employees. While I do not, even for a moment, deny the imperative need to cut back on unproductive jobs, I feel the finance ministry is using the pay hike to cover a multitude of other sins. The increase in fertiliser subsidies -- Rs 1,500 crore, the burden taken on by the finance ministry because of the latest mix-up on petroleum prices -- Rs 3,000 crore, as also the increases in the subsidy on food Rs 2,000 crore -- all account for a much larger burden than that of the latest pay settlement, which increases the burden annually by Rs 2,200 crore. The cash payout of arrears is not an extra burden in real terms.
The settlement itself involved mainly changes in the fitment formula. When pay scales are changed, the incumbent employees have to move over to a new scale. In the organised private sector as well as the public sector, the fitment usually follows what is known as a point to point formula. This is to say, the number of stages in the existing scales which the employee has reached are considered and he is given a corresponding fixation in the new scale. This is point to point. Even here, care is taken to see that employees get an enhanced emolument of around 15 to 20 per cent in each wage settlement. In government, however, the formula for pay fixation has been different. It is calculated on the basis of adding an amount to total existing emoluments and then fixing the persons pay at the next stage in the scale. This amount was recommended at 20 per cent of the basic pay by the Fifth Pay Commission. The government has revised it to 40 per cent. This does look like a giveaway. But is it really so?
At the lowest level of government employees, existing emoluments before pay revision were Rs 2,358 per month. The formula for fixation of pay, as prescribed by the Pay Commission, gave an increase of 20 per cent of the existing basic pay which itself was only Rs 870 or nearly one-third of the total emoluments. This meant that the new pay was fixed at Rs 2,500 per month -- an enhancement of less than 10 per cent of the total emoluments. The difficulty arises because the formula relates increases to 20 per cent of basic pay which itself was only a small part of the total emoluments.
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The patchwork solution could have been avoided if the Pay Commission had itself adopted a formula which would have given a more generous but differential increase to the lowest paid categories. A reading of the Pay Commission's report shows that the increase for the higher paid categories appears to have been proportionately higher than for those at the lower end.
Higher categories had less neutralisation of inflation and therefore their basic pay bore a higher percentage to total emoluments than in the lower categories. The formula of increase by 20 per cent of basic pay thus gave an apparently better deal to the higher categories, partly compensating for the earlier denial of full neutralisation of DA. After taking into account the latest increase, the per capita increase goes up by Rs 500 per month on an average. At the lowest levels, it will be even less. The settlement of 40 per cent of basic pay as increase over earlier emoluments amounts to an average increase of less than 20 per cent of the total emolument over a 10-year time-frame. This has to be compared with the 15 per cent increase on an average almost every five years in the organised private sector.
Another change effected by the government is relatively minor. The span of scales -- the time taken by a person to reach his/her maximum has been reduced. At the lowest level (S1), earlier scales used to have a span of 19 years, now compressed to 11 years. Similarly, scales of pay which had a span of 22 years to 30 years have also been given lower spans. Even so, the latest increments are measly compared to what exists generally in the organised private sector.
The problem is not so much with these changes as with the refusal of the government to consider the sensible suggestion of the Pay Commission to extend the date of retirement from 58 to 60. This would have given it an annual saving of Rs 1,500 crore per year for 1997-98 and 1998-99. The burden of paying pensions today falls on working persons. Those who have retired are not currently contributing to the national product. In a pay-as-you-go scheme, it is the sections of the community working today who bear the burden of pensions. It would have made better sense for the government to extend the date of retirement. At least the current practice of giving extension on an arbitrary basis could be stopped. What is more worrying is the lack of emphasis on productivity gains. The numbers bandied about the cost ignore this important factor. It is all part of the popularity game.
In all the conflict about the details of the settlements with government employees, the broader implications on the already battered finances of state governments have not been recognised. The trend has been for the state governments to adopt, in full, the recommendations of the Central Pay Commission. It is true that after all, central government employees all over the country also get similar scales of pay. Be this as it may, the hole caused by the Pay Commission report and its implementation in the state budgets will be very large. The tragedy is greater since the states depend in turn on the Centre.
All this points to the urgency of formulating a national wages and incomes policy. The approach of appointing Central Pay Commissions which pronounce judgments from time to time on emoluments of sections of government employees has been found to create more conflict and controversy. No section of politicians wants to be seen as resisting demands of particular sections of employees, however much they may privately agree that the demands may be exaggerated. A discussion on the major issues of wages and incomes is overdue. The current debate about income inequalities -- the fact that large incomes accrue in the private sector to a few -- needs to be integrated into the wages and incomes policy. The largesse of pay increases goes only to a favoured few. In India, the employed themselves are a privileged class. Among them also many are more equal than others. The issues of adequate incentives, of proper motivation simultaneously with promotion of greater equity have to be addressed by a special wages and incomes commission of eminent persons, including trade union representatives, political leaders and economists. India cannot continue to suffer the consequences of piecemeal solutions which generate more problems.