Analysis of Government’s decision to implement the 7th Pay Commission

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Introduction

Providing for and taking care of the well-being and satisfaction of the employees is one of the major obligations set upon the employers. The Government being one of the largest employers in this regards, is not an exception either. With the prices of the basic necessities as well as living standards of the people rising, the remuneration which is provided to them for working is also bound to rise whether it is in form of salary, pension or some other allowances.

Pay Commissions, which are the government appointed committees, are setup in this regards at regular intervals of time to decide and deliberate on the increment which shall be provided to the current and former employees of the government. The Government of India has initiated the process to constitute the 7th Pay Commission and on 25th September, 2013, it got the assent of the then Prime Minister, Dr. Manmohan Singh. It took 18 months to give recommendations, which recently, on 29th June, 2016, were approved by the Government of India. The commission submitted the report in November 2015, and its major recommendations to the government included 23.55 percent overall increase, in the salary 14.29%, in allowances 63% and in pensions 24%. [The Economic Times, All you need to know about 7th Pay Commission] The government after due consideration accepted and implemented most of the recommendations, which are to be enforced from January 1, 2016. [First Post, 7th pay panel: Markets may not be happy, but consumption story to get a leg-up, 29 June 2016].

7th CPC: The Good

The revised salary and pensions is going to benefit almost 1 crore government staff and will have a bearing on nearly 50 lakh central government employees and close to 58 lakh pensioners [First Post, Cabinet Clears 7th Pay Commission, higher salaries seen boosting urban demand, 29 June 2016].The commission recommended a health insurance for all the beneficiaries and raised the gratuity amount’s ceiling to Rs. 20 lakh which is the double of the previous rate and retained the annual increment at 3%. To increase transparency in the system, the previous system of ‘Pay Grade’ and ‘Grade Index’ is done away with and the system of ‘Pay Matrix’ is introduced. The minimum pay is also increased from Rs. 7000 to Rs. 18000, which happens to be more than double (to put it in a perspective, even a driver of a peon will be earning at least Rs. 18000).

The 7th pay commission removed the obstacles which remained there after the 6th Pay Commission, in regard to the Child Education Allowance and made the process much simpler. Sick Leave, Hospital Leave, Special Disability Leave are all merged into one ‘Work Related Illness and Injury Leave (WRIIL)’ and provisions are made that full pay and allowance will be given during the period the person remains in hospital.[Hindustan Times, 7th Pay Commission recommendations cleared: 15 things you need to know, 29 June 2016].

7th CPC: The Bad

Though the new Pay Commission brings a lot of changes which were needed in the present system, but the dissent on various facet shows that the recommendations of the commission missed to appease all sections of the masses alike.

One of the major conflict is the part where the salaries of junior employees are hiked by merely 14% whereas those of senior employees are hiked by almost 25%. The other facet of the disagreement is that the commission used the study of difference of salary provided to a corporate personality and a government employee, whereas the affected people say that the comparison should have been with employees of Public Sector Firms. [Hindustan Times, 7th Pay Commission: Babu Politics, Money matters keep govt employees unhappy, 1 July 2016].

The discontent that prevails is also due to a partial reason that the present Pay Commission recommended the lowest hike in the past 70 years. The 6th Pay Commission recommended 20% hike but the then government made it 40%, in the present case the recommended value was 14.29% to which the government made a minimal hike of 15% increment.

The Money Matters

The 7th CPC benefits around 1 crore people, the basic salary has been raised to Rs. 18000 as against Rs. 7000 and goes up to Rs. 2,50,000 (for the cabinet secretary and similar posts) against the Rs. 90,000. The new scheme puts an additional burden of around Rs. 1,02,100 crore on the government. The amount of Rs 73,650 will be borne by General Budget and Rs. 28,450 will be borne by the Railway Budget [First Post, Why the Seventh Pay Commission is an opportunity for PM Narendra Modi, rather than a Threat, 29 June 2016].

The economists predict that after the money starts flowing in from the side of the government, people will start discretionary spending and people will invest the same money in buying various things required to lead a comfortable life including cars, televisions, ACs, and even houses, which in turn will create a ripple effect and thus will boost the economy. This also seems needed as in the current scenario, the growth in other sectors is yet to pick up due to both the internal and external factors and thus, the consumption push created will be beneficial. The prediction of good monsoon is also there which will thus boost the village economy. Accordingly, both rural and urban economy will provide the necessary impulse.

A concern is raised related to economic inflation as the conditions when the recommendations were made and the present conditions are different, the prices of crude oil are on the increase and inflation is on high, but in that scenario the event of exit of Britain from the Euro Club is to provide a slowdown in international market and the good monsoon abetting the rural economy will reduce the chances of inflation growing further.

If the deficit and the burden created on the exchequer is to be considered, then the major chunk of money will come back to the government in form of taxes, both income and indirect taxes (almost 20%) [First Post, Why the Seventh Pay Commission is an opportunity for PM Narendra Modi, rather than a threat, 22 November 2015] and the rest of the money is most likely to provide the economy a much needed boost.

Japanese brokerage Nomura estimates that the cumulative fiscal burden on the government from the pay and pension hike, including arrears but excluding allowances, will be Rs 60,600 crore out of which Rs 43,200 crore has been budgeted for. Hence, the additional Rs 17,400 could marginally challenge the government’s target of keeping the fiscal deficit within 3.5 per cent of GDP in the current fiscal.

As was with the past several pay commissions, the 7th pay commission too had a fair share of controversies attached to it, the primary being the filing of a plea by some retired officers from central services including former defence officer, who contended that inclusion of Vivek Rae, secretary level officer in IAS would lead to certain bias on the part of the commission in ascertaining the required increase. The plea also mentioned a contention that “No person who has ever been a member of any of the services, whose pay or pension is under fixation should be on the commission” [Indian Express, Inclusion of IAS officer in 7th Pay Commission challenged in Delhi HC, 7 May 2014]. But, if the past trend is taken into consideration then except the 1st Pay Commission every other pay commission had members from IAS background [5th Central Pay Commission Report, Para 1.12, access at http://archive.india.gov.in/hindi/images/banner/linktousbanner/fifith_cpc/part_1.pdf, accessed on 7 July 2016 ]. Moreover, the decision of the commission is the collective decision of all the members and not one, and thus, the issue was put to rest and Vivek Rae served as Member (Full Time) of the commission.

The other angle was also appended when the Supreme Court formed a new pay commission for the trial judges, and the retired Madras High Court judge, Justice E Padmanabhan was to head this commission which was to look into and recommend about the pay of 14000 trial court judges. If the backdrop of the events is seen, after the 6th pay commission, salary of judges of the Supreme Court and High Courts was increased threefold but the trial court judges were still paid less. This order from the SC came because of a petition filed by All India Judges Association, where it put an argument that there should be an upward revision of salaries of lower court judges in proportion to the hike in the salary of the judges of High Courts and the Supreme Court, as stated by Justice Jagannatha Shetty, who headed the first judicial commission. The 3rd pay commission was the first one to go beyond the idea of minimum subsistence and advocated that the salaries provided should be attractive so as to retain and satisfy people doing the jobs, and what has been done by the Supreme Court could be said to be in furtherance of the same, as the conditions prior to this newly constituted pay commission were not good for the trial judges which sometimes even leads to corruption. This way could also be advocated as a way to attract brilliant legal minds to the profession.

Thus, despite various controversies which came in between and were settled for the good, it can be said that the propositions introduced in the 7th Pay Commission are reasonable, as they are aimed to provide the internal economy a boost, as well as it aims to provide the employees of the government with a general overall good financial condition.

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