Seventh Pay Commission: Heaping More Bounties on Less Government

Seventh Pay Commission will do little to improve the functioning of a lethargic bureaucracy, writes Mohan Guruswamy.

The UPA government announced the Seventh Pay Commission just ahead of the 2014 Lok Sabha elections, hoping to garner support from officialdom. We will soon have to suffer its consequences. It’s understood that the Finance Ministry has now readied its recommendations for the Seventh Pay Commission.

Around 48 lakh central government employees and 55 lakh pensioners will benefit from it. The new total monthly salaries are expected to be in a band of Rs 21,000 to Rs 270,000. In addition there will be house rent allowance or free housing, dearness allowance, free utilities, full and free healthcare and lifetime pensions.

Government jobs are easily the best in the country and entry into the government is like entering a golden world of privilege and lifetime prosperity.

Increasing Burden on the Government

As it is salaries now exceed the total capital expenditure of the central and state governments. Government has become very expensive, not because of numbers, but because of what it doesn’t do. As much as Rs 30 lakh crore goes uncollected as rightful revenues. Even if half of that is collected, India can be transformed with a hugely expanded infrastructure that will take the economy to a different growth and development orbit.

In the last three years, the Union government’s expenditure on salary, allowances and travel has seen a steady rise – from Rs 1.21 lakh crore in 2013-14 to Rs 1.5 lakh crore in 2014-15 – an increase of 14 per cent. For the current year, the salary bill would go up by about 9 per cent to about Rs 1.75 lakh crore.

Taken together with the combined wage burden of close to Rs 5 lakh crore for all states, the total wage bill to be impacted by the Seventh Central Pay Commission is estimated at over Rs 6.5 lakh crore – close to 5% of the GDP. There is more to government than just this.

The three levels of government together employ about 185 lakh persons. The central government now employs 34 lakh, all the state governments together employ another 72.18 lakh, quasi-government agencies account for a further 58.14 lakh, and at the local government level, a tier with the most interface with the common citizens, we have only 20.53 lakh employees.

A sum of Rs 1 74,081 crore has been provisioned in the current budget to pay central government employees – about 10.45 per cent of its overall expenditure. The estimated wage bill of government at all tiers is around Rs 10.42 lakh crore or about 10 per cent of the GDP.

Number of Employees

Prime Minister Narendra Modi has promised us “less government and better governance.” But do we have too much government?

Not really. Consider this: India has 1,622.8 government servants for every 100,000 citizens. In stark contrast, the US has 7,681. The central government, with 3.1 million employees, thus has 257 serving every 100,000 population, against the US federal government’s 840.

Now look at the next tier at the state level. Bihar has just 457.60 per 100,000, Madhya Pradesh 826.47, Uttar Pradesh has 801.67, Orissa 1,191.97 and Chhattisgarh 1,174.62. This is not to suggest there is a causal link between poverty and low levels of public servants: Gujarat has just 826.47 per 100,000 and Punjab 1,263.34.

In vast swathes of territory the government is barely visible. No sooner you get off the tarmac roads and highways, all signs of government disappear. Even government primary schools when not locked, function mostly to provide midday meals than any worthwhile education.

There are very few signs of the police, irrigation, power and PWD departments. In most of the adivasi homelands the only presence of modern India is often the contractor or the forest guard. It’s as if a vast stateless nation exists.

Need to Restructure Public Administration

Even in urban areas the PM’s call for a Swachch Bharat goes unheeded because the systems to collect trash and dispose them just do not exist. Does anybody wonder why Indians defecate everywhere? It’s such a commonplace sight that it doesn’t even repel us anymore. The PM’s call is timely, but to put it into effect we need the public systems that can carry away waste.

This is why the reform of government is critical. The central and state governments must cede most of their authority and powers to a vastly expanded local government tier which will give us better governance and value for money.

Merely heaping bounties on an already lethargic and highly corrupt bureaucracy without altering the terms of employment and restructuring public administration is only to pour more money down the tubes. Making less government even more expensive.

(The author is chairman and founder of Centre for Policy Alternatives)