Now with two years having passed the present regime seems to have thrown these promises out of the window. This assertion is being made based on the fact that a couple of months back the government announced that it had decided to recruit another 200,000 people for its various departments over the next 2 years. Then lately it has announced pay hikes to government employees by accepting the recommendations of the 7th Pay Commission. It is another matter that the central government and the railway-men unions have not accepted the quantum of increase given them in this round and have threatened to go on strike since they want more of a wage increase!
The 7th Pay Commission will not be limited to Central Government staff alone since progressively it will be implemented for staff in State Government and also quasi- government institutions. This will lead to a massive outflow of money on a recurring monthly basis as also towards payment of arrears. Though at this time with the 7th Pay Commission being applicable from Jan 2016, the arrears and their impact on the economy are relatively less. However what the government is not taking into account is the fact that this salary hike for employees in the government and the public sector will have repercussions in the private sector. There will be pressure by the employees in this category for increases in salary which the small industries and MSME sectors will find it difficult to grant. The same applies to the services industry where at the lower rungs, employers may not be able to hike salaries so easily. The banking sector will follow with their demands for salary hikes and in fact the bank unions have called for a strike on this issue shortly. Thus implementing the 7th Pay Commission will bring in tension and uncertainty in the workplace which is not desirable particularly at this juncture since both, industry and the services sector, are not growing.
It is a known fact that our government departments are overstaffed and it is also known that the efficiency of government functioning has not improved over the last decade or more and definitely not over the two years that this NDA government has been in office. Therefore the salary increase is completely unwarranted. We are paying the majority of government employees for not working and with the 7th Pay Commission, we will give them a raise to ensure that they continue not to work. Moreover with industrial production showing stagnation it will only fuel inflation. It is expected that more money in the hands of the people through the salary hikes will give a boost to demand. But this is not likely to happen since industry is stuck with lack of confidence to do fresh investment and is tied down with the banking system in resolving their existing lines of credit embroiled as NPA’s. We will thus be left with a situation of stagflation with prices spiraling sky high and uncontrollably. It will then not be long before we end up like Venezuela of some or the countries of Africa where food is beyond the affordable level of the people let alone other daily necessities. What the government needs to realize that there is a larger world outside the salaried and pensioned sector who are not protected by salary or emolument hikes. Like the urban poor and those involved in agriculture, where growth has been stagnating either because of bad monsoon or structural reasons and there is less money in the hands of the rural people. Again retirees who are not part of pension plans. All these people will be impacted severely with the expected inflation from implementation of the 7th Pay Commission recommendations. It may be the question of even starvation for some of these kind of people.
The seeds of inflationary tendencies in the Indian economy were sown by the UPA when they implemented the 6th Pay Commission’s recommendations. At that time it was thought that the government employees had not got a raise for quite a long time and they should be given the salary increase to fight rising prices. It was also thought that a hike in salaries would reduce corruption since the belief was that if the employees could make ends meet by legitimate means, they would resort to lesser demands for bribes etc. This was the salary model that was followed in Singapore, where the government employees are paid handsomely and Ministers are paid equivalent if not higher than a CEO in a private sector firm, thus almost eliminating corruption. But despite the 6th Pay Commission wage hikes, corruption in India while interacting with government employees did not go down. Thus again going through a raise with the 7th Pay Commission is completely unnecessary and in fact wasteful.
Even with the 6th Pay Commission there had been recommendations by economists that the wage hike could be linked to productivity benchmarks for the government employees. Additionally it was recommended that the salary arrears payable could be kept in fixed deposits which could be withdrawn after a period of 3 years at the choice of the employee. This measure would have ensured that government was infused with efficiency and the inflationary impact of the arrears could be contained. This was not done and the foundation for a high inflation economy was set at that time which effects we are seeing today. In fact even for the 7th Pay Commission the same thing should be done and productivity-linked wages should be hammered out with the unions and the arrears kept safely in fixed deposits to contain inflation. The government has recently said that increments to its employees will be linked with performance. These are just empty assurances since where the government is unable to implement any of its policy measures through its employees and get things done, where will it be able to stop increments of non-performing employees?
Instead of doing that Arun Jaitley, Finance Minister, who is more of an advocate than a finance man or an economist, has already had meetings with the Central Government unions promising a hike in the minimum wage from Rs. 18,000 a month. He has also the other day while speaking of the banking sector woes stated that the savings rate for bank deposits should be cut since that raises the cost of operation of the banks. With 46% of India’s savings in bank deposits, Jaitley’s suggestion is that these should be moved out to investments in shares, mutual funds, bonds etc. which are essentially are floating market devices. This is completely stupid since those who desire fixed income from bank deposits should not be forced to consider moving their savings to riskier methods of investments. There is a large population mostly among the middle-class who are not pensionaries and who depend on the steady income from bank and postal deposits but who unfortunately do not have a voice since they are not a vote bank. This category of people will be thrown into uncertainty by the Finance Minister’s utterances which clearly outlines what the future will bring. This class of people is already seeing the impact of inflation on their savings which will be further diminished or made risky by the government’s new policies.
Thus overall the 7th Pay Commission recommendations should be scrapped or at least held in abeyance so that they do not further add an impetus to inflation which has been plaguing our economy for long. The recommendations are also to be seen as a populist measure on the eve of elections to States like UP which are critical for the BJP to win for comfortably passing legislation in Parliament. Another aspect of this wage increase for government employees is that Parliament in the next session will be seeing a bill to raise the salaries and allowances of our MP’s. Thus the Finance Minister can claim that having implemented the 7th Pay Commission recommendations for the people what wrong have the MP’s done and do they not deserve compensation for rising prices? This is how our country works with those wielding the reins of power driving the horse to where it is most advantageous for them.
