'Minimum Government' pledge takes back seat as staff compensation soars

Pensions and salaries took away more than a fourth of government's revenue spend in 2017-18 and 2018-19

In his political campaign for the Bharatiya Janata Party (BJP) in the general election of 2014, Prime Minister Narendra Modi had said this: “I believe the government has no business to do business. The focus should be on Minimum Government, Maximum Governance.” 

Looking at the size of the government, however, this promise seems far from being fulfilled. The spending on salaries and pensions of officials in general government and defence services has only gone up, if we look at the actual spending from 2014-15 to 2017-18. 

As a percentage of overall revenue expenditure (non-capital spend such as administration, salaries, welfare schemes), salaries and pensions grew from 22.7 per cent in 2014-15 to 26.2 per cent in 2017-18. The silver lining though, is that the intention of the government is in the direction it had promised (see chart 1). 

The revised estimate of 2018-19 pegged salaries and pensions at 25.4 per cent of revenue expenditure, while the government has budgeted the spend at 23.6 per cent in 2019-20. This includes salaries—pay, allowances and travel expenses—to officials in government’s ministries and departments, salaries to army, navy and the air force personnel and others, in addition to pensions to retired general government officials and defence personnel. This also includes grant-in-aid salaries meant for officials designated on special governmental projects.

Larger slice of the spending pie

As a proportion of gross domestic product (GDP), the government's salary and pension spending rose from 2.7 per cent of GDP in 2014-15 to 2.9 per cent of GDP in 2017-18. It is projected to remain at the same level in 2018-19, to reduce to 2.8 per cent of GDP in 2019-20. 

Analysts, experts and economists have commented that the revenue projections presented in the Interim Budget are ambitious. This makes the revenue expenditure estimates ambitious as well. If the government is unable to spend as planned due to shortfall in revenue mobilisation, the salary and pension spend will put more pressure. 

In absolute terms, the expenditure rose from Rs 3.33 trillion in 2014-15 to Rs 5.44 trillion in 2018-19, and it will rise to Rs 5.77 trillion in 2019-20 according to budget estimates. This is partially evident from how the government plans to increase its establishment size (see chart 2). 

Rising staff numbers 

From the first year of the current National Democratic Alliance government, 2014-15, till 2016-17, the number of employees services by government’s budget expenses actually reduced from 3.33 million to 3.24 million; a fall of nearly 3 per cent over two years. (as of March 1 in the respective financial year). 

However, the government plans to increase its own size now. From 3.24 million in 2016-17, the number of government employees is expected to rise to 3.62 million in 2019. 

This data must be taken with a pinch of salt, though, as in all of the past three years, the government could not increase the strength of its establishment despite its intention to do it, older budget documents show. For example, the planned strength on March 1 2017 was nearly 3.5 million, but the actual figure remains 3.24 million. 

An interesting pattern emerges if we look at the salaries spent on government staff, as against the falling and rising strength over the tenure of the government. 

Salaries rise faster 

When the staff strength reduced by a per cent and two per cent, sum of salaries towards the same employees rose by nine per cent and 20 per cent in 2015-16 and 2016-17, respectively. In 2017-18 and 2018-19, staff salaries are rising faster than staff strength. Part of the explanation for this lies in the implementation of Seventh Pay Commission recommendations. 

Similarly, salaries rose 10 per cent with a 8 per cent growth in number of employees in 2017-18, while by 13 per cent for a smaller, 4 per cent growth in staff strength in 2018-19 estimate. 

While data show that the government has increased the staff strength of almost every department and ministry in 2017-18, only railways stands to gain more employees in 2018-19. 

The government has budgeted an addition of nearly 100,000 new employees in 2018-19. Finance minister Piyush Goyal had promised last month that railways would create more than 200,000 new jobs in coming years.