The seventh pay commission has recommended a 23.5% hike for central government staff and retired employees. It will spread cheer among the 10 million plus potential beneficiaries, enabling them to battle inflation and the rising cost of living. There is no gainsaying the fact that India’s government personnel deserve better wages to keep pace with their private sector peers. Wage levels in the private sector have galloped far ahead of government staff and are often linked to performance and qualitative parameters.
The rationale for constituting a pay commission is predicated on the argument that the usual labour market-determined wage-fixation model would not work in a government set-up. For instance, how does one attach an appropriate value to the skills of a top bureaucrat such as a secretary-level officer? As an employer, the government has to ensure that it remains an attractive career option for millions of aspirational youth who join the workforce every year.
While remuneration remains the most important variable in making a career choice, intangible and qualitative factors — often referred to as the X factor in human resource management jargon — wield considerable influence on people’s choices. The seventh pay commission’s recommendation favouring child care leave to single male parents to take care of their minor children is a welcome step, in line with changes taking place in the society.
The pay commission recommendations would mean that the government’s total spending on employee payouts will rise by Rs 1.02 lakh crore. The problem gets a little trickier if the government were to implement the ‘one-rank, one-pension (OROP)’ kind of retirement benefit scheme for central paramilitary forces and civilian staff. There are strong arguments on both sides on OROP, but the government cannot afford not to keep one eye on the fisc.
Already, the pay panel recommendations will increase its fiscal deficit by 0.65 percentage points and likely impact the deficit-reduction target of 3.5% for the next financial year. There are a few positives though. More cash in hand is likely to result in higher consumption and spending on assets such as cars and housing.
The sales pick-up could help swell the government’s indirect tax kitty and partially help offset the fiscal hole that the wage hikes could drill into its books. That said, however, this may be the just right time to look at a more lasting framework, like a permanent pay commission that the fifth pay panel had suggested, instead of making it a decadal affair to avoid 10-year fiscal tremors.