Economic Highlights

New Delhi, 5 July 2007

Looking for Better Pay Scales

TRICKY PROBLEM FOR GOVERNMENT

By Dr. Vinod Mehta

The Sixth Pay Commission should be submitting its report in the next six to eight months.  The Government employees are eagerly awaiting the recommendations as they expect good pay scales. Some of the observations of the Commission have given rise to this expectation, especially the one which notes the widening gap in the emoluments of employees in the private sector and their counterparts in the government sector. A result of the 15 years of economic reforms. For instance, there is a very wide disparity in the emoluments of senior persons working in nationalized banks and those in the private banks. The result? Talented officers are leaving nationalized banks to join private banks. 

However, implementing higher pay scales may be a tricky job. Prior to setting up the Commission, the Government had consulted the State Governments on this issue. Almost all the State Governments have indicated that they are willing to accept the recommendations of the Commission for higher pay scales provided the Centre shares the burden of increased salaries. 

It may be noted that the Fifth Pay Commission had upset the budgets of many State Governments and till date the finances of many State Governments are in a very precarious situation. Recall, while the Centre had accepted the recommendations related to hiking the pay, it could not muster the political courage to downsize the bureaucracy. As a consequence, the bureaucracy remains bloated and the financial burden of the governments both at the Centre and the States goes on increasing every six months.

The Expenditure Reforms Commission too had made recommendations regarding the downsizing of the bureaucracy in a phased manner over a period of ten years yet little is visible on the ground.

One of the important recommendations of the Fifth Pay Commission was that the whole administration needed to be officer-oriented, and public servants needed to convert from mere controllers and regulators to catalysts, promoters and facilitators. To quote: “Their numbers need to be right sized and an officer orientation brought about. The Government itself needs to be restructured by closing down departments or amalgamating them, by transferring subjects and institutions to the State Governments and Panchayati Raj bodies, by converting departmental undertakings into public sector undertakings…”

At another place it says: “Simultaneously the government office needs to be reoriented.  There has to be de-layering in order to reduce levels and level-jumping in order to reduce delays.  Large unwieldy sections have to give way to small business-like desks, the vast army of ministerial staff may be casually replaced by Executive Assistants, with the group ‘D’ personnel being trained as multi-skilled functionaries.  Automation and computerization would be brought in wholesale so as to cut down paper work.”

Sadly, in the past 14 years not much has been done to implement these recommendations. The expectations among the government staff is that their salaries would be further raised without downsizing the bureaucracy.  But given the financial position of the Centre and the States, there will be no escape from downsizing the bureaucracy. 

How will the Government do it? One has to wait and watch. As a general observation one can say that the pay and allowances of Government staff should be linked to the ability of the Government to pay.  But the question is how do you define the ability of the Government to pay when the Government itself is paying huge amounts of hidden and open subsidies for political reasons? 

When the Government can neither cut down superfluous subsidies nor wasteful expenditure because of its archaic rules and regulations, how would one convince the Government staff that it cannot bear the burden of extra expenditure on account of enhanced pay and allowances?  Any way the actual recommendations will be known only after the report is submitted by the Commission.

The main task of the Pay Commission will be to recommended pay-scales for the Central Government staff and recommend an increase with a view to reducing the gap in the salaries in the Government and those in the private sector. At the same time, the Commission also owes it to the society that it can encourage people to go in for vocations which serve the interest of society at large.

Moreover, the Commission’s recommendations will also indicate what kind of personnel we need and the importance of the personnel to economy as a whole.  If one goes by the choice of the students taking up graduate courses, one will find that there are hardly any takers for science courses.  Gone is the time when taking up a science course was an honour.  Now young students prefer to take a course which fetch good salaries in the market like commerce, economics and management etc. Students are not taking up courses in science because the salaries are comparatively low and there is not much scope for career advancement.   

Think for a moment that if bright students are going for commerce, economics and management and such like courses, will we have people to do scientific research?  Who will do research on new molecules or develop new alloys? Who will look after our atomic energy and our space programme?  Scientists are the back-bone of any country whether it is the USA, Russia, Korea or Japan.  If we do not make scientific research attractive enough in terms of good salaries bright young students will go for courses like commerce, economics which may give them good salaries but will not be an asset to the nation. 

It is reported that the salaries of the scientists in Pakistan are higher than the salaries of the scientists in India. One would, therefore, like to draw attention of the Pay Commission to look into the salaries of the scientists engaged in research and make them more attractive so that young students choose research in science as a career over purely commercial careers.  Countries like the USA, Japan, Korea or even China are economic powers because the technology they have in their country is based on the scientific research of their scientists. 

It is always the endeavor of the bureaucrats that salaries of the Government employees whether that of scientists or any personnel engaged in research are below the salaries of the joint secretaries to the Government of India.  Why should a scientist earn less than a bureaucrat?  Will the Sixth Pay Commission be able to give different recommendations which gives prominence to scientists in every field of scientific research?

The second category of employees which requires the attention of the Pay Commission is that of school teachers.  School teachers in every country are given due respect by the society as they not only instill basic knowledge in the minds of the young students but also mould their character. These students then go on to become future scientists, bureaucrats, researchers and so on. There is a misconception that school teachers work only for a half day.  They also have to check the home work of each and every student and prepare the lessons for the next day, which they normally do at home. Thus, they are also working the whole time.

However, compared to the kind of work they do, the teachers salaries are less than that of a Section Officer in the Government of India. The average annual salary of a TGT and PGT is between Rs. one-and-a-half lakh to Rs. two-and-a-half lakh as against Rs.4.5 lakhs earned by a school teacher in Thailand, Malaysia or Turkey. Salaries of the college teachers are comparatively much better. They are two to three times more than those of the school teachers.  It is, therefore, not surprising that a large number of school teachers supplement their income by giving private tutions at the cost of teaching in schools.

Some time back the Supreme Court had questioned the very low pay-scales of school teachers.  But the Government has chosen to remain mum.  It would, therefore, be in the fitness of things that the Sixth Pay Commission recognizes the contribution of school teachers to society and looks into their pay-scales and recommends reasonable scales for them. ---INFA

 (Copyright, India News and Feature Alliance)

ECONOMIC HIGHLIGHTS

New Delhi, 28 June 2007

Farmers’ Suicides

Can Contract Farming Stem the Rot?

By Dr. Vinod Mehta

The inability of some State Governments and the Centre to check the increasing number of suicides by farmers has prompted economists and officials to allow contract farming of commercial crops. They feel it can give better prices to farmers. Is this really so?

Contract farming implies a system for production and supply of agricultural products, especially commercial crops like sugarcane, vegetable, fruit etc, under forward contracts between the farmer and the buyer. Under this arrangement, the farmer commits to provide an agricultural product, at a time, a price and the quantity required by the committed buyer, which is generally a large company. The typical contract is one in which the contractor supplies all the material inputs like seeds and technical advice required for cultivation against some monetary consideration, while the farmer supplies the land and labour.

On the face of it, this arrangement appears to be good. The farmer finds it attractive, since all the inputs along with the know-how is provided by the corporate entity, and there is a purchase guarantee of the produce after harvest. As of today, with soaring prices of fertilizers and quality seeds and an uncertain market, agriculture is increasingly being seen as a risky proposition.

Contract farming is not new to India.  As early as 1920, the ITC started giving contracts in what is now called Andhra Pradesh for the cultivation of Virginia tobacco. More recently the Pepsi Company entered into contract farming for tomatoes’ cultivation primarily for export purposes.

According to Agriculture Ministry sources, the total area currently under contract farming covers nearly seven million acres of the total cultivable land of 400 million acres, i.e. less than 2 per cent. However, if one were to purely count corporate contracts with farmers for their crops, then this figure would barely touch 200,000 acre. As of today, a very small proportion of agricultural land is under contract farming. Though encouragement to contract farming is a part of the UPA’s Common Minimum Programme, it is doubtful if it can play a significant role in changing the face of Indian agriculture.

Some of the studies on this system point to mixed results which are neither in the interest of farmers in general nor the nation. Firstly, unlike in the developed countries where the farmers are educated and stand up to big companies, the Indian farmers are not well educated and may not understand the nuances in the contract and could feel cheated at the end.

For instance, it has been reported that farmers in the Bhatinda belt alleged that the Punjab Agra Food Corporation and several private companies had promised them a price of Rs 1,350 a quintal at the time they sowed their paddy, in 2003-2004. But when it came to buying their produce they were offered as little as Rs 700 a quintal!  The companies argued that the quality of paddy was poor. The farmers suffered losses of Rs 300 per acre and in all about Rs 36 crore. If such a situation occurs it may well lead some farmers to commit suicide.

The other side of the story is that if the market price is more advantageous than the contract price, farmers renege on the contract. The Government knows from recent experience that the farmers did not sell the wheat to the FCI at the minimum support price plus Rs 100 as bonus, instead they sold it to private buyers who were willing to pay more.

The second point is that food security is an integral part of our agriculture.  The contracts entered into by big companies with farmers are for crops which fetch good prices in the international market like basmati rice, fruit and vegetables. If contract farming is allowed on a large scale, there is a danger that the cultivable land will be diverted to such crops and less of it will be available for grain, pulses and edible oil seeds, which may affect our food security.  And, we now know how expensive it is to buy wheat abroad. 

Thirdly, the promise of economic security within the contract farming system may be very attractive as far as the farmer is concerned, but the health of the soil a few years later may get affected. The farmers may ignore this in favour of immediate gains from contracting with companies and not for the country as a whole.

Fourthly, farmers as a class may not be as savvy as the marketing managers of private companies in drafting contracts. There is always a danger that these companies may draft clauses in their own favour. Is legal advice available to farmers to vet the draft contracts? And, can they afford the cost of such legal advice?

Therefore, what we need is not contract farming on a large scale but a comprehensive agriculture policy, which in the long run ensures farming as a remunerative activity like industrial activity. This calls for the creation of infrastructure, which includes road connectivity, availability of quality inputs, timely credit along with technical know-how, chain of cold storages, and help viz marketing of agricultural products.

The big companies, as we see are going into marketing of agricultural products in a big way, whereas earthy farmers are no match for well-trained company managers, who would always wish to pay lower prices. Cold storages etc. can strengthen the bargaining power of farmers. Today, what the agricultural sector needs is “Amul” type cooperatives for supply of inputs, chain of cold storages, and marketing cooperatives.

According to a study sponsored by the Maharashtra Economic Development Council, contract farming may be useful in areas such as seed multiplication, organic foods, vegetables, fruits, and exotic produce/plants, export crops, and aromatics, herbal and medicinal plants practices. Thus, it has its uses and in certain cases is desirable, but it cannot become the main system of farming. It will not be able to check farmers’ suicides.—INFA

(Copyright, India News & Feature Alliance)

Economic Highlights

New Delhi, 21 June 2007

LEAVE PAY FIXATION TO INDIVIDUAL BANKS

By Dr. Vinod Mehta

The principle of one type of pay scale for all the bank employees doing similar work in the nationalized banks has been restricting competition, penalizing efficient workers and rewarding inefficient employees.

This issue has become very important in the wake of the emergence of banks in the private sector.  The private sector banks are able to attract efficient people by offering better pay packets.  Moreover, all the nationalized banks are not doing well—some are relatively more efficient than others.  One may then legitimately ask as to why the employees and workers of less efficient nationalized banks should get the same pay and bonus as those of the efficient banks?

The first and foremost thing which the public must force the government to do is to delink all the nationalized banks from one another and make each nationalized bank an independent entity for purposes of management and functioning. 

Simultaneously the all India unions of bank employees and bank officers be derecogonized and in their place recognition be accorded to unions and associations of individual banks.  The recognition of all India unions has done immense damage to the healthy growth of banking industry in the country.  The bank employees through their all India unions have come to enjoy near monopoly powers which they are using to the hilt to further their interests at the cost of losses to their own banks.

By delinking the nationalized banks and derecogonising the all India unions and associations of bank employees and officers, the negotiations between the employees and the management will become concern of a particular bank and if a particular bank is earning good profits why shouldn't it be allowed to pay more to all its employees than the bank which is running into losses.  This will ensure that the banking industry as a whole is not paralyzed; only the employees of a particular bank may go on strike which may have some grouse against the management.

At the same time there is a need to restructure and strengthen the savings bank facilities available with the post office as an alternative to nationalized and other private sector banks. In some countries like the Netherlands, post office bank is an institution itself mobilizing the savings of general public while offering them low cost facilities like issuing of bank drafts, transfer of funds from one account to another by means of cheque or electronic media; even some of the post office bank branches offer AIM facilities to its customers.  These services are provided to customers at rates which are lower than the ones charged by big commercial banks.

This is the kind of alternative banking model which India can look at as for as a large number of average citizens are concerned.  Post office in India is one of the oldest institutions offering savings bank facilities to a large number of people all over the country.  Moreover, as the commercial banks restructure themselves, the small savers and account-holders are getting marginalized, the post office bank could cater to their needs.

However, for the Indian post office to act as an effective alternative to commercial bank as mobilizer of savings and as a provider of banking services, it will have to change its style of functioning and to the extent possible computerize its operations. For instance, there are now computer-linked machines which can automatically update the passbooks saving a lot of time to the general public.

Again the government will benefit in the sense that it will have a large pool of public funds available to it for various kinds of legitimate government activities since the post office funds are not expected to enter the commercial market in any significant way.  That is to say the savings mobilized through the post office banking channel could be invested in Government securities etc and the interest earned thereon would be used to pay interest to the depositors.  This would also mean that the Government could borrow a part of its requirements from the post office savings bank instead of borrowing from the open market.

The emergence of private banks have changed the equations in the banking sector.  Some of them have already consolidated their positions through mergers while others are looking for such opportunities.  If the nationalized banks do not raise their efficiency by upgrading their technological base and bringing in talented people, they will lose out in the long run.---INFA

 (Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 14 June 2007

India’s Turbulent Future

Managing Water Efficiently

By Dr. Vinod Mehta

This year monsoon is predicted to be normal, which has increased the chances of good harvest. But there is larger concern which goes beyond good monsoon and that is the availability of water in the country is decreasing with every passing day and unless something is done to conserve water we may be courting trouble, vis-à-vis, population, agriculture and industry. The experts have forewarned that the water crises could have serious economic and social consequences.

According to a World Bank Report: “India faces a turbulent water future. Unless water management practices are changed – and changed soon – India will face a severe water crisis within the next two decades and will have neither the cash to build new infrastructure nor the water needed by its growing economy and rising population.”

The unresolved disputes over water-sharing between Tamil Nadu and Karnataka and among Punjab, Haryana and Rajasthan are pointers in this direction.  At the moment these disputes are dormant because of the good monsoon this year.  But they will again resurface if there is a bad monsoon in any year.  Water like land is limited and its total availability cannot be increased to any significant extent. Therefore, the political leadership of the country must rise to the occasion to tackle the impending water crisis.

Let us first have a look at some of the facts. Fresh water represents less than 0.5% of the total water on the earth surface. Rest of the water is either in the form of sea water or locked up in icecaps or soil. The worldwide consumption of water is doubling every twenty years more than twice the rate of increase in population.

Water is being used recklessly despite the fact that it is scarce.  A large amount of water is being wasted in agriculture, industry and urban areas. It has been estimated that available technologies and better upgradation practices, agricultural water demand could be cut by about 50% and that in urban areas by about 33% without affecting the quality of life. But most of the governments do not have adequate laws or regulations to protect their water systems.

In most of the developing countries the fresh water supply comes in the form of seasonal rains. Such rains do not provide enough of time for efficient use during the monsoon. India, for instance, gets 90% of its rain fall during the summer monsoon season which lasts from June to September. For the rest of the months there is hardly any rain. As a result of the seasonal nature of rain India can make use of no more than 20% of its potentially available fresh water resources.

It is reported that the per capita availability of renewable fresh water in the country has fallen drastically over the last fifty years. The water table is rapidly falling with unregulated over exploitation of groundwater. By 2025 water scarcity in India is expected to be acute and big dams, mega river linking projects or privatized water distribution may not help. Apart from rain the other two important sources of water in India are rivers and ground water. India has 14 major, 44 medium and 55 minor river basins. India’s ground water resources are almost ten times its annual rain fall. Like surface water nearly 85% of the ground water is used mainly for irrigation.

It is quite obvious that the country will have to do something so that the water problem does not assume any alarming proportions. Since we do not have any control either over monsoon or rivers the only way to conserve water is through efficient management of rain and river water. It calls for various measures in the next two to three years.

Amazing that despite the fact that we are faced with the problem of growing scarcity of water, we do not have any national water policy. During drought we dig up many areas under ‘food for work programme’ for storing rain water during the next monsoon. Then we come up with ideas like linking of rivers and occasionally we beat our chest for the falling underground water table. One has been hearing about water harvesting for several years but not much is known as to how much work has been done in this area.

It is, therefore, essential that the country must have a clear cut water management policy for the next fifty years. How the river water is to be used and how it is to be diverted from surplus to water deficient areas must be clearly spelt out. Linking of rivers is a good idea but before attempting such a course an exercise must be carried out very carefully to weigh all the pros and cons of it because once the rivers have been inter linked it may not be possible to reverse the whole thing if we find one day that it is not working well or has created numerous other problems. Secondly, linking of rivers will displace millions of people.  How are we going to handle them.

For each district and for each village we should have a data base on the average annual utility of water, number of wells, ponds, pools, streams etc. This will help manage water in a better way. Beyond this there is an urgent need to change the attitude of the people towards the use of water. As of today people are wasting and polluting a large amount of water in many ways. The most polluting of them are the city sewage and industrial water discharged into the rivers. Currently only about 10% of the waste water generated is treated. The rest is discharged as it is into our water bodies. Due to this, pollutants enter ground water and other water bodies. This water which ultimately ends up in our household is often highly contaminated carrying disease causing microbes.

Water from the agricultural fields that drains into rivers is another major water pollutant as it contains fertilizers and pesticides. The effects of water pollution are not only devastating to people but also to animals, fish and birds. Polluted water is unsuitable for drinking, recreation, agriculture and industry. It diminishes the aesthetic quality of lakes and rivers. More seriously contaminated water destroys aquatic life and reduces its re-product ability. Eventually it is an hazard to human health. Nobody can escape the affects of water pollution.

Therefore, apart from having a national water policy, the government along with NGOs and local communities should start a long term campaign to educate and sensitize the general public about the need to save water and stop its pollution.  Management of scarce water should also be made a part of the school curriculum. The children should be taught the value of conserving water.---INFA

 (Copyright, India News and Feature Alliance)