A mismatch in pay hike, price rise

The price of essential commodities rise on a daily basis, whereas pay hikes come on a decadal basis in India.

The Seventh Pay Commission (SPC) has recommended a hike of 24 per cent in salary and allowances of Central government employees.This comes to roughly three per cent annual increase in pay and 67 per cent hike in allowances.

Allowances, by and large, comprise dearness allowance (DA), while other proposals include gratuity limit enhancement from 10 to upwards of 20 lakhs. After a formal endorsement by the government, these hikes will come into effect from the New Year.

Once Central government employees get the hike, it will be the turn of state government employees to ask for similar hikes. It is but natural that state governments will toe the Centre’s line and raise the salary and allowances of their staff as well. Pay commission recommendations in India come at infrequent intervals. Six pay commissions have been instituted so far and this pattern is likely to continue in future too.

The reality is that, in India, the price of essential commodities rise on a daily basis, whereas pay hikes come on a decadal basis. By the time pay commission proposals come, prices shoot up several times in comparison to the salary hike. In the instant case, the Central government staff will get only a 24 per cent rise in their salaries whereas the market prices have gone up many fold.

Take the case of pulses. A very essential item in a household’s grocery list, dal prices have gone up from Rs 20 per kg to Rs 200 per kg. Despite all efforts, the price still hovers around Rs 150 a kg. Similar is the case of rice. With an increase every year in the government’s minimum support price (MSP) for paddy, there is a corresponding increase in its price too. In other words, essential food items behave in their own ways.

Pay commission recommendations nowadays don’t generate much enthusiasm as they did earlier. By the time the announcement trickles in, employees are already in the know of things – the probable amount of hike and the consequent increase in prices.

The DA is an allowance only for the namesake; it is nothing but salary. Following frequent demands, the DA and the basic pay have been merged in the past resulting in a new pay scale. But alas! Salaried employees of the Centre and states don’t get the price-rise neutralised by this pay revision. While traders and businessmen walk away with their profits and the daily wage workers gets their due wage, it’s the salaried class – consisting of the upper- and lower-middle class employees and the majority unskilled workers – which actually feels the pinch.

Prior to World War II and during the British rule, employees would only get their salaries. During the war, when essential commodities became scarce and prices went up, this additional component called ‘dearness allowance’ was introduced. The impression was that once the war ended prices would come down and the DA component would be abolished. But that never happened. War gave birth to bigger and new-fangled demands.

With the onset of modern living, lifestyles underwent remarkable changes. Along with educational facilities, the demand for sophisticated commodities and items grew. The present century is witnessing an additional and augmented demand for various services and goods resulting in higher expenditure. Yet, there isn’t a shortcut formula which can compensate the low-salaried employees. Although the government increases the variable DA on the basis of price index, this component is too little to be seen.

Perpetual losers

Economists are of the view that if ever a formula is devised where price rise can automatically be neutralised by salary increase; the whole economy will be destabilised. So, while the automatic formula remains unviable, salaried class continue to be the losers.

Now for the impact of SPC on the treasury. According to estimations, the government has to shoulder another Rs 1.20 lakh crore burden towards pay revision which is 0.65 percentile of the budgetary deficit. This, undoubtedly, is going to exert pressure on the economy. True, because of the constant dip in crude oil prices, there is some relief to the economy. But these positive gains will be nullified once the pay commission recommendations take effect both at the Centre and in the states.

Forget the social disparity the SPC will bring in, the sinister part is the impact of recommendations on the population as a whole. With the revision touching 47 lakh Central employees and 53 lakh pensioners, their disposable income will go up significantly and there will be an increased demand for FMCG products. Of course, demand will spur in real estate, automobile and healthcare sectors too. However, if past experience is anything to go by, such stimulated demand comes only for a while.

Reports say the minimum salary of a Class IV employee will be Rs 18,000. If allowances are added, the gross income will be somewhere around a quarter of a lakh. Compare and contrast this with the pay of a private sector employee, whose salaries are at a sub-optimal level.

All in all, with the enhancement of salary and wages of government employees, the corresponding accountability and service should also improve. Inasmuch as government employees constitute a large work force and have strong unions, the government is obliged to increase their salaries in decadal intervals. But, their commitment to work and productivity should also be judged.