7th Pay Commission: What no one will tell you
Salaries for central government employees account for one per cent of the country's GDP which would now inevitably increase, perhaps by up to 0.3 per.
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Central pay commissions (CPC) are constituted to advise the government on salary corrections for civil and military employees. But pay commissions can also be a potent political tool.
The Congress-led UPA 2 government used the tool when it announced setting up of the Seventh Pay Commission in February 2014, just a couple of months ahead of the general election, which it knew was going to be a very tough fight.
It was a masterstroke by the Congress because the Seventh Pay Commission was due only over two years later as the Sixth Pay Commission was set up in July 2006.
The UPA 2 government had taken used the pay hike trump card to counter the rising popularity of the Bharatiya Janata Party (BJP), which had chosen Narendra Modi as its poll mascot and prime ministerial candidate.
The Congress gamble failed to make any impact and the eventual Modi tsunami swept off the entire Opposition, reducing the then 126-year-old Congress party to its worst-ever Lok Sabha tally of 44 seats. However, the failed Congress mantra has since been copied by Modi's BJP with resounding success in crucial Assembly polls where the saffron party's prestige and political future were at stake.
Recent examples of the political use of the Seventh Pay Commission and dangling this carrot were visible in Gujarat and Tripura. In fact, it's believed that BJP's historic win in Tripura was made possible because the party promised the electorate that it would implement the recommendations of the pay commission in the state if it were to come to power.
However, to the credit of the BJP, it has fulfilled its promise in Gujarat and announced setting up of an expert committee to implement the same in Tripura. Moreover, the BJP-ruled Maharashtra, which incidentally is not poll-bound, has just announced a Rs 23,000 crore bonanza for its 1.1 million employees and seven lakh retirees towards implementing the recommendations, even though the state government had allocated just Rs 10,000 crore for the scheme's implementation.
The central pay commission can be used as an effective poll card and the BJP has successively proved just that. Undoubtedly, this poll card will be used even more extensively in the coming Assembly elections as well as the next general elections, not just by the BJP but by many more political parties.
However, as the adage goes: A politician thinks of only the next election while a statesman thinks of the next generation. In a country like ours where all political parties and politicians are engaged in a rat race to somehow win the next election, a statesman is an endangered species, if not already extinct.
While India's political class must be wary of this dangerous gamble of using the central pay commission as a political bait, which incurs a huge cost, yet the trend is catching up.
The economics of central pay commissions
The 14th Finance Commission estimates the cost of the Sixth Pay Commission at over Rs 90,000 crore annually, since pay and allowances of Union government employees more than doubled between 2007-08 and 2011-12. Compare this with the estimates in the Economic Survey for the year 2011-12 - about Rs 70,000 crore each for food subsidy, fertiliser and petroleum subsidy and less than Rs 40,000 crore for the Mahatma Gandhi National Rural Employment Guarantee Act.
In other words, the additional central government expenditure due to the implementation of the Sixth Pay Commission was over 40 per cent of the major subsidies. Now take into account the costs to the state governments and the cumulated bill for Sixth Pay Commission largesse is equivalent to all the subsidies provided by the central government. The 14th Finance Commission estimates that after the implementation of the Sixth Pay Commission's suggestions pay and allowances of central government employees more than doubled between 2007-08 and 2011-12.
Now cut to the Seventh Pay Commission. The Seventh Pay Commission, constituted in February 2014 under the chairmanship of Justice Ashok Kumar Mathur, takes within its ambit 48 lakh central government employees, 55 lakh pensioners and over one crore state government employees.
The commission presented its 900-page report to finance minister Arun Jaitley on November 19, 2015. According to the report, the increase in pay will be 16 per cent, increase in allowances 63 per cent and increase in pension 24 per cent. Currently, central government salaries and allowances account for one per cent of the country's GDP which would inevitably increase, perhaps by up to 0.3 per cent of the GDP, considering the minimum average pay hike of 16 per cent of the Seventh Pay Commission.
Politicians try to lure gullible voters with such baits making them believe that the money will be put in their pockets.
Meanwhile, the intended beneficiaries of the pay hike are still in a lurch. Though the Centre announced that the recommendations of the pay commission would be implemented retrospectively from June 2016, raising the minimum pay from Rs 7,000 to Rs 18,000 per month on the basis of fitment factor (a figure by which the basic pay is hiked from its previous level based on Sixth Pay Commission report) of 2.57 times. Employees have been demanding hike on basis of fitment factor calculated at 3.68 times but the Centre is offering just 3 times.
The central government employees are still waiting to get hiked salaries as per the latest recommendations, though a positive point from their perspective is that they would get the hiked salaries retrospectively from January 2016. However, the massive bank frauds, which the Congress alleges are now to the tune of Rs 39,000 crore, may play a spoilsport and further delay implementation of the hike.