Sixth Pay Commission may derail Economy

'The Fifth Pay Commission (set up in 1994) recommendations resulted in a Rs 530 billion payout by the government. The next (sixth) pay commission would effectively wind up Indian sovereignty.'
-- Arun Shourie, former Union minister for divestment, statistics and programme implementation

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In an interview to the www.rediff.com the former Union ministerSh. Arun shourie has opposed the setup of Sixth Pay Commission.

Read full interview here.

We must scrap Pay Commissions

'We must scrap Pay Commissions'

Bibek Debroy, secretary general, PHDCCI

July 24, 2006

Last week, the Manmohan Singh Cabinet set up the Sixth Pay Commission that will determine the wages of central government employees for the next 10 years.

India Inc has reacted strongly to the constitution of the new pay panel. Apex business bodies like the Confederation of Indian Industry (CII); the Federation of Indian Chambers of Commerce and Industry (FICCI); and the Punjab, Haryana and Delhi Chambers of Commerce and Industry (PHDCCI) argue that the new pay commission recommendations, when implemented, would stifle the country's economic growth.

The Fifth Pay Commission was set up in 1994. And when it was implemented in 1997, it created an additional burden of Rs 17,000 crore (Rs 170 billion) per year on the government's finances. Many state governments couldn't bear the burden of the hike at the time, forcing the central government to devise a financial bailout package for them.

So, why did the government hastily set up the Sixth Pay Commission? One expert who has voiced his concern on the new Commission is Bibek Debroy, secretary general, PHDCCI.

A wellknown economist, Dr Debroy served till last year as the director of Rajiv Gandhi Institute for Contemporary Studies in New Delhi.
In an exclusive interview with rediff.com Managing Editor George Iype, Dr Debroy explains how damaging can the Sixth Pay Commission be for India.

Why do you think Prime Minister Singh decided to set up the Sixth Pay Commission?

That is something that the government has to answer. But the irony is that the government has set up the Sixth Pay Commission without implementing the recommendations of the Fifth Pay Commission. There were many measures that the Fifth Pay Commission had recommended: like downsizing the government and going forward in administrative reforms.

While recommendations on downsizing and wage increases linked to productivity were ignored, the increase in wages and salaries was implemented. Sadly, the government implemented the recommendations pertaining only to wages and salary hikes.

The state governments have also followed suit. The result was that the Fifth Pay Commission recommendations completely ravaged the finances of the central and state governments.

What will be the effect of the Sixth Pay Commission?

We do not know what will be the recommendations of the new Pay Commission. But I am sure it will increase inflation and stifle economic growth. Also, once the impact on states and other quasi-government bodies is factored in, the Sixth Pay Commission will cost 1.5 per cent of GDP, something India cannot really afford.

This represents regressive transfers from the poor of the country. The poor pay through higher taxes for a salary budget that could have been spent on physical and social infrastructure.

Do you think setting up the new Pay commission is a regressive move?

Yes, it is a regressive move. First of all, where does the money come from to give higher salaries to millions of government employees? The Pay Commission recommendations on salary increases benefit 4.2 million central government employees, and 20 million state government employees when the recommendations eventually trickle down to states. But this hike is paid for by the 380 million who work outside the government.

Soon after the implementation of the Fifth Pay Commission in 1997, the government had set up the 10th Expenditure Reforms Commission. It had also suggested that downsizing the government was the most urgent issue. What happened to that recommendation?

Look, a number of commissions like the last Pay Commission and Expenditure Reforms Commission had recommended downsizing the government. But nothing has been done on this front for long. Ironically, the central government claims that its workforce has reduced in the last few years. But it is all a sleight of hand.

The corporatisation of the BSNL (Bharat Sanchar Nigam Ltd) reduced the workforce in good numbers. But that is not the 'means' under which the workforce should be reduced. Actually, the number of employees in the government -- the central government and the states -- has not reduced.

Do you think autonomous bodies under the government are also eating into the exchequer? It is said there are more than 300 autonomous bodies under the central government and their cost of operation every year is around Rs 8,000 crore (Rs 80 billion).

All these autonomous bodies should be turned into self-financing bodies. They should only be given some capital expenditure to run.

Do you think there is political pressure behind the setting up of the Sixth Pay Commission? Especially from the Left parties?

Setting up the Pay commission was a collective political gambit. It is not just the Left parties alone that wanted the Commission. In fact, Prime Minister Manmohan Singh had announced the setting up of the commission in February without consulting the state governments. There was a consensus that the central government must consult the states before setting up the crucial commission, because if pay hikes are implemented for central employees, naturally the states have also to raise the salaries.

But only after the central government announced that it is setting up the Commission, did it start consulting the states. I think it is a political game by the Congress party itself. Maybe they are looking at elections in 2009. They may be thinking that it will favour them politically it they can execute the Sixth Pay Commission before the next general election.

Do you need India needs such commissions?

What is the need for a Pay Commission? It has an archaic model up. It was first set up in 1956. Since then we have religiously continued setting up the Pay Commissions! It is high time India scraped the system of setting up Pay Commissions. If public sector undertakings want to increase salaries to their employees, let them do it. Let us set up a collective bargaining mechanism instead.

What do you mean by collective bargaining?

Government employees do not come under the purview of either the Trade Union Act or the Industrial Dispute Act. Rule 7 of the Central Civil Services (Conduct) Rules, 1964, prohibits government employees from going on a strike. It effectively means that government employees do not have collective bargaining power which is available to workmen in other industries and in the private sector.

I feel government employees should be given collective bargaining rights. This will help them to argue for a wage hike in accordance with their performance and calibre and they can actively negotiate with the government as a matter of right.

The government should facilitate this by amending the Trade Union and the Industrial Dispute Acts. This will ensure that there would be no need for further pay commissions from time to time.

(This interviews was published in www.rediff.com and taken with thnaks)
Published at http://inhome.rediff.com/money/2006/jul/24inter1.htm

Govt decides to set up sixth pay commission

Govt decides to set up sixth pay commission

NEW DELHI: In a heart-warming gesture to lakhs of Central Government employees and pensioners, the Union Cabinet on Thursday gave its nod for setting up the Sixth Pay Commission with an 18-month tenure to submit its recommendations on wage revision.

Implementation of the recommendations of the yet-to-be-constituted three-member Commission, to be announced by Prime Minister Manmohan Singh in the next few days, is likely to cast an additional annual burden of about Rs. 20,000 crore on the Central exchequer, considering that the financial impact of the previous Commission was Rs. 17,000 crore.

Announcing the Cabinet's decision entailing far-reaching financial and political implications in view of the percolation effect on the States, Union Information and Broadcasting Minister Priya Ranjan Dasmunsi told newspersons that the Commission, like the previous five, would examine issues such as pay and allowances, service conditions, promotion policies, retirement benefits, inflation and standard of living of the Central staff.

"The Commission will also examine the desirability, need and quantum of interim relief, if any," he said.

Mr. Dasmunsi said the precise terms of reference of the Commission would be announced at the time of its constitution. It would comprise a Chairman in the rank of Minister of State, one part-time Member and one Member-Secretary in the rank of Secretary or Additional Secretary at the Centre.

The Minister pointed out that the decision to set up the Commission — five months after the Prime Minister's announcement — was taken keeping in mind the "long-standing demand of the employees and the opinion of State Governments" although the Twelfth Finance Commission advised doing so on a regular basis.

Of the 16 States that responded to the UPA Government's queries on the proposal, only two BJP-ruled States — Madhya Pradesh and Gujarat — were against the move, while Karnataka, Orissa, Jammu and Kashmir, Assam, Nagaland, Tripura and Manipur sought financial assistance for implementing the recommendations, said Mr. Dasmunshi. Mr. Dasmunsi said the views of the State Governments were sought primarily because once a decision was taken on salary revision for the Central staff, the States were expected to face similar demands from their employees.

The Twelfth Finance Commission, headed by former Reserve Bank of India Governor, C. Rangarajan, disfavoured setting up of such pay panels at regular intervals as the Fifth Pay Commission's report, when implemented in 1996-97, plunged most of the States in serious financial crisis.

The burden was so heavy that the then Finance Minister had no other option but to come out with a financial bailout package.

Even the Economic Survey 2005-06 had advised the Centre to remain vigilant and exercise caution in this regard. It noted that on the implementation of the Fifth Pay Commission's recommendations the general fiscal deficit rose each year to touch a peak of 9.9 per cent in 2001-02. The Government needs to "avoid a repetition of a similar deterioration [of fiscal situation] in the medium term," the Survey said.

However, the Prime Minister had commented that the Pay Commission issue would not hurt the fiscal situation.

The Finance Ministry had also assured that efforts would be made to see that the increased wage burden was reasonable, appropriate and affordable and in consonance with modern requirements.