Dr Bharat Jhunjhunwala
The biggest challenge facing the Finance Minister in making the coming budget is to find money to pay increased salaries to Government Servants pursuant to the recommendations of the Seventh Pay Commission. It is estimated that an additional burden of more that Rupees one lac crores will be imposed on the Central Government. The total expenditures of the Government in 2014-15 was about Rs 18 lac crore. About five percent increase in the budget will go towards paying these increased salaries. Correspondingly, the Finance Minister will not be able to make necessary increases in other required expenditures like irrigation schemes, Rafael fighter planes and bullet train. Tinkering with the budgetary allocations will not solve this problem.
The present dispensation is based on the assumption that Government Servants serve the people, therefore, provision of increased salaries will enable them to serve better. The basic character of Government Servants does not match with this dictum. The Manu Smriti says, “Employees appointed by the king are mostly takers of property of others and cheats; from them the King should protect the people” (7.123). Likewise Kautilya says in Arthasastra: “Just as it is impossible not to taste the honey or poison that finds itself at the tip of the tongue, so it is impossible for a government employee not to eat up a part of government revenue. Just as it is not possible to find whether the fish moving under water is drinking water or not, similarly it is not possible to find out how much money the government employees have embezzled” (2.9). More money paid to Government Servants, therefore, means more power to takers of property of others and more opportunities to eat up a part of government revenue.
The World Bank had made a study of the average salary of government servants and its ratio to the average income of the citizens of various countries. The ratio of income of the government servant to that of the citizen was 1.4 times in the United Kingdom. The ratio in some other countries was as follows: Indonesia 1.0, China 1.2, United States 1.4, Korea 1.5, Argentina 1.9, Singapore 2.9 and Malaysia 2.9. In comparison, the average income of the government employee in India the ratio was 4.8 times-highest among all major countries. Further, If there was a decline in the ratio in Indonesia, Argentina and Korea between 1995 and 2000 while it remained unchanged in China, England, Malaysia and United States. The global tendency is for the salary of government employees to be brought down closer to the incomes of the people. Not in India. The ratio has increased from 3.6 to 4.8 in the same period. This has already further increased due to the implementation of the Sixth Pay Commission and is now slated to increase further. The poor citizen is paying taxes to pay hefty salaries to the Government Servants appointed to serve him!
The Commission has said that the burden of this increase will be less than the burden imposed by the Sixth Pay Commission. The Sixth Pay Commission had led to an increase in revenue expenditures of the Government by 4.32 percent. The Seventh Pay Commission has patted its back saying its recommendations will only lead to an increase in revenue expenditures of 4.25 percent! Say, the previous doctor had given the wrong medicine to the patient. The new doctor is saying he has given less of the same wrong medicine. Need was to reverse and rectify the mistakes of the past Pay Commissions.
There are two types of services that the government provides. Some services can only be provided by the government while other services can also be secured by individuals directly from the market. The first category of services is called public goods. These include currency, defense, police, judiciary, highways, ports, electricity distribution, land records, etc. A citizen cannot obtain these services at his individual level even if he is willing to pay for these. The second category of services is called private goods. These include health, education, culture, and the like. These services can be obtained by the individual directly from the market.
The difference in the two services is explained by Gurudev Rabindranath Tagore. He said, “Government existed in ancient India in the form of kingship. But there is a great difference between the Western state and our kingship. The West has handed over all responsibilities to the state. India has done that only partially. The respectable people in the society provided education of knowledge and morality without wage payment. The king was expected to assist and honour them but only partially. Generally this was the work of every householder. If the king stopped assistance, or if there was social upheaval in the society, even then the provision of education was not interrupted.”
The consequence of entry of the government in provision of private goods is plainly visible. A teacher in a government school draws a salary of Rs 30,000 per month and only 50 percent of the students taught by him pass the exams. A teacher in a private school draws a salary of Rs 8,000 per month and 90 percent of the students taught by him pass the exams. Government Servants employed in providing the public goods are indispensable. But we have spawned a huge army of government servants in providing the private goods. The Pay Commission should have suggested lower salaries to government servants providing private goods.
The Government has established Committee of Secretaries to take the final view on implementation of the recommendations of the Seventh Pay Commission. Like the members of the Commission, the Secretaries will be beneficiaries of the decisions taken by them. They are an “interested party” and not in a position to take a dispassionate view. The Government must, therefore, immediately appoint a number of independent persons to this Committee. For example, the presidents of Bar Association of India, Institute of Chartered Accountants, Confederation of Indian Industries and Indian Economic Associations could be appointed to this Committee. Then alone it will be possible to take a view that is not colored by the selfish interests of the Government Servants and the Finance Minister may be saved from finding this huge amount to pay salaries to these takers of property of others and eaters of government revenue. A friend of mine from Kolkata said the next war will not be with Pakistan or with the Maoists. The next war will take place between the common man and the Government Servants. The Government will do well to deal with this schism in the polity before it becomes untreatable. The Budget should put on hold increase in salaries of Government Servants.
(The author was formerly Professor of Economics at IIM Bengaluru.)
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