Hiccups over better pay

The Central government may have approved the 7th Pay Commission’s recommendations, but central employees are not mollified. Unions have dubbed the proposed salary hike ‘meager’, complaining that the government has multiplied the basic pay by 2.57, when they had wanted it be multiplied by 3.68. Thus, the minimum basic pay will be hiked from Rs 7,000 to Rs 18,000, which employees unions aver is totally idequate in inflatiory times. They want the minimum basic pay to start from Rs 28,000. What is more, they also want withdrawal of the new tiol pension scheme (NPS), which came into effect from October 2004. Employees who retired earlier are comfortably placed — their pensions have been hiked by successive pay commissions, adjusted with inflation, and guaranteed from the public purse. But those employees retiring after 2004 have had much higher retirement savings forced upon them, which has got the unions up in arms. Besides, unions are also protesting the ‘huge gap’ being created between minimum monthly salary of Rs 18,000 and maximum salary of Rs 2.5 lakh. So hectic negotiations with the Centre are on, failing which, unions are threatening to go on strike from July 11. It remains to be seen how much increase in basic pay the Central government is willing to accept; rather, some increase in allowances is more likely. In its cabinet decision, the Modi government has approved an overall 23.55 percent increase in salaries and allowances for over 1 crore government employees and pensioners, along with an annual increment of 3 percent. The breakdown is interesting, with a reported 16 percent increase in basic pay — the lowest hike ever in this segment — apart from 63 percent hike in allowances and 24 percent increase in pensions. A fundamental change proposed is to abolish pay grades or pay bands, which signifies a one-rank one-pay scheme in future.

Fince minister Arun Jaitley has said that the total burden on the exchequer due to the revised pay structure will be Rs 1.02 lakh crore. While this translates to 0.7 percent impact on the country’s GDP, the multiplier effect with so much liquidity will also be considerable. This explains why the NDA government is courting a risk by taking on such a large salary and pension burden. With more money in the hands of central employees and pensioners, there could be demand push and higher inflatiory pressures. But a section of experts believe that the Modi government is desperate to cash in on the country’s 7.6 percent growth figures to shore up private consumer demand and create more jobs. Unless greater purchasing power is not injected into the system soon, market sentiment will not improve and the NDA will be hard put to deliver on its electoral promises. Britain’s shock exit from the European Union also needs calming of market fears through jacked up domestic demand. Some positives which seem to have steeled the government to bite the pay bullet is the Fince Minister maging to keep a tight leash on fiscal deficit at 4.7 percent, Reserve Bank Governor Raghuram Rajan’s hardline against lowering interest rates which has largely kept the reins on inflation, the above-normal monsoon projections this year boding well on the farm front, and the backlog of arrears payout limited to only six months from January last under the proposed salary hike. Industry groups, particularly consumer durables sellers, have already welcomed the pay hike announcement, with stock markets reacting favorably and the sluggish realty sector anticipating a boom. What needs be done now is to broadbase the pay bonza to the states, with state governments taking their cue from the Central move. Since the number of state employees is at least three times larger than central employees, extending the ‘Feelgood’ factor makes eminent economic sense. Whether Assam, given the parlous state of its finces, will be able to join the bandwagon is another matter. The sooner its own 7th pay panel winds up talks with stakeholders, the better. And if the State government gets to extract better work ethics from its employees, few will grudge their better pay.