Economic Highlights

New Delhi, 27 September 2013

Seventh Pay Commission

WILL FUEL INFLATION, CURB GROWTH

By Shivaji Sarkar

Is the Government concerned about inflation and growing fiscal deficit? Doesn’t seem so. That is the message it has sent aloud with its announcement to set the Seventh Pay Commission for 50 lakh employees and 30 lakh pensioners which will saddle the Government with additional expenditure of Rs 1 lakh crore.

Undeniably, it is unethical and unwarranted. True the Government has stopped new recruitment officially though it employs people on contract in every Department at one-fourth the wages given to a regular staffer or outsources jobs to private agencies thereby opening up avenues for exploitation (and possible corruption). Instead of a new pay panel the Government should have opened up the recruitment process to create a positive environment.

With spiralling inflation, sagging economy, falling industrial production, rising fiscal and current account deficit and shrinking tax collection the Government has taken the most imprudent decision. The staff wants a check on prices as their wages are being eroded.

It appears being at the fag end of its term the UPA has least concern for the country. Arguably, the Central and State Governments employ the largest chunk of people. So in its calculations the largest number of voters has a connection to the Pay Commission. Therefore, it thinks it has done enough to garner votes and come back to power and perpetuate a rule that is not people friendly.

In fact, it is almost a scorch earth policy followed by retreating armies. If it was concerned about the economy it would have heeded the call given by Reserve Bank Governor Raghuram Rajan, the Finance Ministry’s blue-eyed boy. Importantly, Rajan has given a strong call to contain inflation and termed it as the Indian economy’s grave malaise.

But, the Government has done just the opposite. A Pay Commission is known to fuel inflation as it increases money circulation, something the RBI has been trying to contain. Also, this might spell bad news for the recovery of the industry as it too would be forced to give hikes to staffers despite poor performances.

Undoubtedly, the Government has touched a sensitive cord. Even though the Opposition might disagree with the Government it would not raise its voice as the Pay Commission concerns wages of Sarkari employees.

Pertinently, the Pay Commission was not demanded and neither was it due to employees. Moreover, never before has a pay panel been approved before the expiry of a ten-year period. Even now the Government asserts that it would be implemented from 1 January 2016, that is by a new Government which comes to power next year.

Yet, it seems the Government has a reason to hurry. Whereby, the ruling UPA wants to go to the polls with the message to employees that even if it failed in taming inflation it is compensating them through a wage hike. A blatant admission of its failure to contain inflation.

However it is deceiving the employees as well. Normally, when employees’ organizations plead for a wage hike before a pay panel, they underscore changes in prices, cost of living and other conditions that have taken place during the decade.

But, this time the employees would find it difficult to concretize their case as the last Pay Commission’s recommendations were implemented only in 2010. Thus, the gains to employees would be minimal and possibly restricted to the fitment in the new pay-scale. It is not necessary that many employees would get any additional benefit.

The exercise may be more euphoric for creating political cacophony than benefitting the employees. The employees’ organizations need to be cautious on the terms and conditions to be given to the new panel.

Besides, food inflation has been in the range of over 18 per cent during the past one year, 40 per cent during the last three years and over 300 per cent since 2004. Can the Government list one step it has taken to curb this?

Further, according to the National Sample Survey Organisation (NSSO) figures prices of all manufactured goods have doubled or trebled during the last over four years alongside wages have shrunk even in the supposedly growing information technology sector. Resulting in rising disparity in Government and private wages wherein many people are being thrown out of jobs. But the Labour Ministry and its officials are mute spectators.

Additionally, the Government has not reduced its expenditure. It has merely cut expenditures on development and plan heads to meet the fiscal deficit target. Plainly, taking the country further back.

Alas, it has failed to take steps and curb facilities enjoyed by Ministers and bureaucrats. Questionably, why should a Government officer in Delhi have an official car to ferry him? Why cannot he travel by public mode or in his own car for which he is paid a transport allowance?

Shockingly, in most cases, officials are pocketing their transport allowance and travelling in officially provided vehicles. Consequently, the Government is being bled by the fleet of its official cars. This is just one instance, there are many other such unwanted expenses. This adds to inflation, but the Government remains oblivious.

Notably, RBI Governor Rajan in his monetary review pointed out that public money kept in banks could not be put to risk till inflation is brought down below 5 per cent in a six to 12 months period. Alongside he raised bank rates to save public money as these monies could not be compromised by lowering rates.

Needless to say, higher inflation and low rates are a dangerous concoction for getting repayments given that bank losses totaling over Rs 450 lakh crore has posed severe problems for lending. Hence, Rajan could not have risked a lower rate unless steps are taken to contain inflation.

The RBI Governor feels that the wholesale price inflation would be higher than projected. Which translates that production cost would increase and people would have little money to pay for it. “Consumption is weakening even in rural areas. Consumer durables output have shrunk by 0.9 per cent in July”, warned RBI.

Clearly, at a time when growth is trailing, announcing steps that have mere cosmetic values needs to be shunned. The Government has not yet set up the Pay Commission. It needs to have a serous rethink as many other aspects of the economy need correction. It would be wise to shelve the setting of this Commission if it wants India’s economy to come back on track. ---- INFA

(Copyright, India News and Feature Alliance)