Pay revision to weaken economy

The Central government has taken the easy and populist option by deciding to implement the recommendations of the Seventh Pay Commission. Over one crore Central government employees and pensioners will directly benefit from the bonanza being given to them, but there is little thought about its implications and consequences for the economy. There is no doubt that government employees have to be paid well and kept happy so that they work to the best of their abilities and contribute to the society. But the policy of continuous increases in the salaries, allowances and other benefits of the staff without any insistence on their obligations to the society or accountability will lead to the weakening of the administration and the economy. The governments usually have no option but to accept the proposals for salary revisions made by the pay commissions. These are actually political decisions because no government can withstand the pressure from organised employees.

The Seventh Pay Commission has, like others in the past, suggested measures to reduce the flab of the bureaucracy and to increase the efficiency and productivity of the staff. But these steps never get implemented. The government departments are overstaffed and the work culture is not good. Increasing the salaries of the bloated staff, along with the rising cost of administration, increases wasteful expenditure. Salary increases without addressing these issues cannot do much good. Finance minister Arun Jaitley has said that higher salaries will attract better talent to government service. But what has discouraged talented persons from joining government service is not salary levels but the poor work culture, which will remain unchanged. The additional salary burden will be too heavy for the stricken railways, which will have to find new resources to stay on track. The impact of an outgo of over Rs 1 lakh crore on the country’s fiscal situation will be considerable, though the government says it has provided for a major part of it. If fiscal
deficit targets are to be met, capital expenditure will have to be reduced, and it will set back economic growth.

The large amount of money which will go into the market as salary and arrears will spur inflation which, after seeming to be under control, is showing signs of a spike. A good part of the salary increase is likely to be neutralised by the rise in prices. State governments and government undertakings will also have to increase salaries and
that will add to the pressure. It is pointed out that more money will create more demand and that will give a fresh momentum to economic growth. But it is doubtful whether the net impact will be positive for the economy.