Clipped from: https://www.thehindubusinessline.com/opinion/editorial/questionable-rationale/article69143436.ece
Proposed 8th Pay panel could skew economy, fisc
The Centre has cleared the setting up of the eighth Central Pay Commission (CPC) for its employees, whose proposals are expected to come into effect from January 1, 2026. The 10-year term of the seventh pay panel ends in December this year. The exercise can be evaluated from two standpoints: the raison d’etre for a pay panel (which is not a statutory body) when salaries are periodically revised, anyway and its economic and fiscal impacts. If the pay panel is indeed to raise salaries, it could do so without drastically disturbing the fiscal balance.
At the outset there are logistical challenges. The seventh CPC was set up in February 2014 and submitted its report in November 2015. Its implementation began about six months after the due date of January 1, 2016. In the present case, the panel is yet to be actually constituted, and there is less than a year to go. This could increase the arrears to be paid. But above all, it is worth asking why the basic salary structure would be subject to big revisions (a multiple or ‘fitment factor’ of 2.57-2.8 was applicable to the basic pay of salaries and pensioners under the seventh CPC), when an assured rise in pay as well as DA adjustment for inflation is built into the salary structure. It would be safe to assume an annual increase of at least ₹1 lakh crore in the salary bill of the Centre on account of ongoing CPC. Of the total annual salary and pension outgo of about ₹4 lakh crore towards central government employees, this is not a small sum. The impact on the fiscal deficit cannot be under-estimated. The annual additional sum can increase under a new pay panel unless the fitment factor is reduced. There would be second-order effects in terms of salary scales of bank employees and teaching staff, besides the State government employees – widening the gap between the organised sector and the rest of the workforce.
Indeed, there can be no rationale for such sharp increases for less than 10 per cent of the organised workforce (estimated at 50 lakh staff and about 65 lakh pensioners). In fact, valid, even if stereotypical, questions can be asked about the performance and accountability of the bureaucracy. The argument of parity with private sector to retain talent does not hold, as a government job promises an assured income stream with pension and non-monetary benefits.
The fitment factor should be moderate and constant across the hierarchy, rather than rising with it. For that matter, even a merger of DA and basic pay when the former crosses a certain threshold will result in a handsome increase in allowances, without its denting the finances as much as an onerous multiple would. Modest raises will allow the Centre more fiscal room to fill vacancies in critical departments, estimated at one in every five posts. Finally, large salary increases could be more inflationary than growth-enhancing, if the supply of goods and services does not keep pace.
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