Sixth Pay Commission Report

I had meant to post this comment long back but it just escaped me. I wrote about the Sixth Pay Commission (SPC) report in my ET column. Let me just add a few thoughts here.

• As I point out in my column, the perception that the Commission has gone overboard in increasing government servants' pay is wide of the mark. Yes, they have been generous with grade A employees and there too only in respect of those of the rank of Joint Secretary and above. For the rest, the increases recommended are modest. The ratio of top pay to lowest pay has, as a result, moved up from around to 12. The nominal increase on the average is of 13%, including pensions. Excluding pensions, the increase in pay and allowances may be slightly higher- 15-20%. My guess is that, in real terms, the increase relative to the pay of a decade ago is negligible.
• In the months preceding the Commission's report, commentators had set up a terrific drumbeat as to how the SPC would devastate goverment finances. In fact, the fisc will hardly feel the impact- 04% of GDP is the first year impact, including arrears. In about three years' time, the impact wears off. What on earth were these commentators talking about?
• There is a perception that government is getting fatter. Wrong. It is getting leaner. In two ways. One, through attrition- jobs falling vacant through retirement are not getting filled. Two, increases in manpower have not kept pace with increase in government revenues or GDP. Compensation to government revenues has fallen by a third over the past decade. This is a measure of downsizing. People don't see it because employees have not been fired. But this is cleverer downsizing- let revenues rise, don't let manpower costs rise as fast. It is a form of downsizing that doesn't hit the headlines and hence is politically more manageable. It is the only sort of downsizing that makes sense in a democracy such as ours.
• How to make government more efficient? One element is reasonable compensation. Not that pay in government can ever be on par with the private sector but private sector pay does serve as a distant benchmark. The problem today is that private sector pay has soared into the stratosphere, so pay in government lags behind. The answer, as I point out in my column, is more frequent revisions in government than once in 10 years. The SPC has failed to make this recommendation. However, there are other sensible proposals- running pay bands that end stagnation in a given pay scale is an overdue reform. At present, people are stuck at the top of their scale for years!
  
• Instead, the SPC takes the view that there be selective rewards linked to performance- a private sector idea. I'm afraid given the problems in measuring performance in government and politicians' tendency to abuse such schemes, this just won't work.
• One last point: the SPC favours market-based pay for regulators. The chairman of SEBI or IRDA can make Rs 3 lakh per month. Alas, this won't fly. I can't see the top bureaucrats allowing this. If the cabinet secretary must get less than the president, why should regulators be in a different category?