There is something fundamentally wrong with the Indian economy and one can attribute it among other factors to salary compensation particularly of government employees that has been implemented over the last 15 years or so. From the 5th Pay Commission the rot set in which has continued to the present day when the 7th Pay Commission has been just rolled out.
The government in India is the major employer. Though the Pay Commissions are meant for Central government employees, it is made applicable to State government and quasi-government employees as well. This makes the Pay Commission pay scales applicable to a large part of the employees of the country. It also has a spinoff effect on the rise in salaries of the employees in the private sector. There is a variant that we need to touch upon here and that is the Information Technology (IT) sector. Since the boom years of the late 1980’s and 90’s the IT sector salaries have been on the rise in their attempt to approximate the salaries that are paid in this sector in developed countries particularly the US. However, as a trigger for inflation the government sector employees, the large mass that they are, dominate the impact. Thus at the top half of the jobs market, that is rather elite, the salaries are indexed to the US Dollar while in the rest of the jobs the salaries are being hiked because prices in the market are going up and cost of living is becoming high. There is another category that seeks higher remuneration and that is our legislators both of Parliament and that of the State Assemblies. Their argument is that everyone has got a raise and it has been a long time since their salaries were reviewed.
Now it is a known fact that people in government rarely work or it is rare to see some people work. Therefore paying them beyond what work they deliver is patently irregular. Thus you have lakhs of people with more money than they need to live decently. This is what causes inflation as we are told in the first principle of economic theory that more money chasing less goods causes prices to go up. This is what has happened in the Indian economy. The raises that the government sector employees, in this are included all employees who got Pay Commission benefits either directly or indirectly, has not resulted in any increase in their productivity to put more goods and services in the market. Neither has corruption gone down. It was argued that if you pay employees more, they may perform better and also not resort to corruption. But these beliefs have been proved completely untrue in India.
To resolve this there is no way we can impound the salaries being given to employees nor can we reduce the take home pay now. Impounding was an option at the time when the Pay Commissions were being implemented to have the increase compulsorily put in long term savings instruments so that the money supply in the economy could be controlled.
Since it was not done we cannot re-visit that option. But the government can start serious negotiations with the unions of government employees on delivering productivity at the workplace. With this one could give 80% of the present salary as guaranteed minimum and the rest 20% indexed to a productivity scale as appropriate to the job. Not only that as a carrot the variable could be as high as 40% making an employee eligible for 120% of his salary if he performs exceptionally at the job.
One hates to be pessimistic, but in India a projection would be that this salary band would set at 80-85% of salary. Thus every month more than 15% of the salary budget would be sucked out of the economy.
The rise in prices that we have been seeing across the board in the last few years is because of the excess money supply as we have positioned earlier.
For farmers to get remunerative prices the government has to work out a buffer price scheme that will factor in times of shortages as well as surpluses and provide a guaranteed price to the farmers. As for perishable products a cold chain process from farm to market has to be put in place in those areas which supply a large part of the produce. This will reduce wastage and also give better quality of produce to customers.
Here again they have been taking advantage of the Indian psyche that has been prone to living with shortages for generations making buyers desperate for supplies. This has been exploited to the hilt by the trade to get customers to buy more than what they need so that an artificial shortage is created and prices are managed to remain high. Here again when it comes to agricultural commodities buyers would not mind paying the higher prices if commensurately the quality and packaging of items is improved. So if you are buying tomatoes at Rs 20 per kg, in good times or at Rs 100 per kg during scarcity you will find the quality in good times is better than during scarcity where because of the scare in the latter times in the name of tomatoes lower grade and sometimes unripe ones are sold and buyers grab it thinking that the end of the world is at hand.
In India there is no value given to the higher price that you pay for a commodity. In contrast, abroad, particularly in the developed countries, the higher the price of a commodity, the better will be its quality and packaging. The wholesalers and traders in India are making merry in these times of ding-dong prices little realising that their days of reckoning are near with the big departmental stores likely to take away a majority of their business. There are many departmental stores that buy perishable produce direct from the farmers or supply source leading to better prices for the growers and reasonable price and quality for the consumers.
