Among the flurry of proposals cleared by the cabinet yesterday was the terms of reference for the new Pay Commission. Despite economic growth taking a tumble - from over 9% to sub 5% - and the government caught in a fiscal bind as revenues diminish, non plan expenditure is all set to swell as government babus get a boost in their salaries with the 7th Pay Commission kicking in from 2016.
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The outflow from the central exchequer will be massive. The previous commissions have cost it as much as Rs 2 lakh crore (excluding expenses for railway and state government employees) and severely impacted the fiscal situation of both the central exchequer and departments like the railways, the aftereffects of which are being felt till date. Nonetheless, analysts expect the 7th panel to suggest 3-3.5 times hike in salaries across various grades according to some reports, with the government even considering merging 50% DA (which in itself will be increased by 10% to 100% by end of February) with basic pay of employees, which would further negatively impact outgo on other allowances like the house rent allowance (HRA).
With inflation averaging at 9% in the last few years, the need for an increase in pay for the over 7 million central government employees cannot be a point of debate. We can also discount for a moment the quantum of hikes, even though salaries have tripled every 10 years - a much faster growth rate than in the private sector according to an analysis done by The Hindu Business Line which estimates that the average wage of a factory worker in HUL increased by less than 2.67 times over 10 years despite not being protected under the law from being fired. What needs active political deliberation though is the terms of the hikes and the weight given to performance before deciding on the quantum.
For decades, even as service delivery hasn't improved very much, government employees continue to remain the most sheltered bunch of citizens as far as appraisals are concerned - protected by law on termination and rarely, if ever, gauged on productivity and performance linked targets. According to a 2012 report in the Economic Times while the first three commissions did not consider performance linked incentives, the 4th Commission suggested variable increments to reward better performance, the 5th Commission recommended a variable pay strategy for exceptionally meritorious performance while the last commission proposed a performance related incentive system (PRIS) to offer monetary perks over and above salary for better performance.
The 6th Commission also put forward variable increments for Group A employees with high performers being allowed nominal increments at 1% higher than the majority. RFDs or results framework documents have also been developed where departmental targets are set at the beginning of the year and outcomes measured before assigning a performance rating. But most of these have either remained on paper with no credible movement on implementation or are half baked, ambiguous and non-comprehensive according to experts.
It is time for the 7th Commission to give a face-lift to the overall pay-structure and introduce an effective performance-linked system of giving salary hikes, even introduce a termination warning clause perhaps to weed out absolute turkeys. At a time when private sector majors like Infosys have decided to take a tough stand on non-performers with Executive Chairman N R Narayana Murthy explicitly stating that those not delivering will have to bid good-bye, the centre by rewarding, rather than hauling up non-performing public sector workers is sending out a wrong signal. Not only is it seen as pandering to a 7 million strong vote bank ahead of the elections, but will also be perceived as a government that is punishing the honest citizen by slashing planned expenditure for public good and using the tax payer's money instead to reward a lethargic, non-accountable bureaucracy.
Explicitly linking pay to performance will also encourage the bureaucracy to shake off the perceived paralysis, speed up decision making and improve service delivery - all critical non-legislative reforms needed for the economy to get its mojo back and the government to restore its image.