Why new Pay Commission report is important?
The Seventh Pay Commission report is awaited; it is that time of the decade when Government offices are buzz with expectation and excitement. Revision of salaries of the government employees in the country is a decennial affair. Governments, several of them, have continued with this practice despite the recommendations to the contrary, that is, to reduce the period and have a more frequent pay revision of the government employees. The 7th Pay Commission was appointed in 2014; normally the Commissions have been asked give their reports after due study of pay and allowances of government employees in 18 months. Last month, that is August, the Commission ought to have submitted it’s report. Revision of pay scales is with effect from 1st. Jan 2016. If there is delay in implementation, which generally is the norm, it will be with retrospective effect without change in the due date.
Starting from the fourth pay commission, award of every commission has bought a virtual bonanza to the employees of the Government. Goa has one of the highest proportion of government employees to population. The all India average relatively is lower. There are 48 lakh Central Government employees and over one crore state and local government staff. Out of a total workforce of 47 Plus crore, almost 44 crore are in the unorganized sector. They are not covered by any Pay Commission; from time to time governments do fix the minimum wage rate which is neither uniform across the country nor is it followed strictly in letter and spirit. Viewed from this perspective, the pay panel’s exercise is not significant.
Yet, the Pay Commission recommendations are important from different perspectives. It has the potential to kick start the economy that has not seen growth revival for quite some time. Latest release of data regarding inflation in the economy indicates the decline of retail inflation for the second successive month. Actually, the WPI is in the red, which is a rare phenomenon. By putting more money in the hands of the employees, government might succeed in creating more demand for goods and services. With federal states following in the footsteps of the centre, it is likely to sustain the enhanced demand for a longer time. At least with a time lag it is likely to have a rub off effect on pay and allowances in the organized private sector.
Pay and pension of central government employees amount to a full 1% of nation’s GDP. More pay will only further add to the burden of the exchequer. When the last pay commission’s recommendations were implemented, the fiscal deficit doubled to more than 6% in 2008-09. According to the estimates submitted to the Parliament, government employees are likely to get a pay hike of around 16%. According to an estimate, this would be around 0.2 to 0.3% of GDP. Going by the recommendations of the previous commissions, the average gross increase would be much higher, may even top 40%. The fear of higher fiscal deficit may force the government to effect cuts in spending, with education and healthcare more likely to be the ‘soft’ targets. This will hurt the poor and lower middle class sections of our society. The government is also likely to go slow on investment in infrastructure; even in normal times government’s expenditure on capital goods is not high. This will impact the recovery process in the economy and adversely impact the GDP growth rate.
Since the appointment of 7th Pay Commission was done well in advance, there is enough lead time for submission of report. Further, if the Government takes an early decision to implement the recommendations of pay revision, it will not have to shoulder the burden of arrears of pay. In all the previous pay commissions, payment of arrears was a huge financial burden; in the last pay commission revision, arrears of salary hikes for up to two years had to be paid by governments.
Apart from pay hike, there are other expectations from this pay panel. Keeping in view the rise in life expectancy and dearth of competent staff, the age of retirement may be tweaked in favour of the employees. Performance-linked pay is another area the commission may take a serious look at. Flexible working hours to facilitate women and persons with certain disabilities deserve consideration by the pay panel. The recommendations, therefore, are significant and have far-reaching impact.