Posted by: Manjeet Krpalani on March 25, 2008
Yesterday, a report released by New Delhi’s quaintly-named Sixth Pay Commission, recommended upping the salaries of federal government employees by a whopping 30% to 50%. That’s $7.5 billion added to a an estimated salary bill of $25 billion by 2009.
Agreed, India’s bureaucrats need to be paid better - many are deserving, for they toil selflessly for the country. A large number are not deserving, they have lifetime employment, no performance accountability, don’t show up for work, are lazy, and worst of all, shockingly corrupt.
So yes, a higher salary will certainly persuade the government servant not to seek some ‘mad money’ from the common citizen seeking a passport, for instance, or from a company with a grand plan to set up a much-needed power plant. And it will attract a higher quality of job applicant at the younger levels - with a salary that is not glaringly different from the private sector and a chance to change the country, many young people will find a government job attractive.
The commission has also recommended that the salary hikes should be based on performance - much like Wall Street.
The flaw in this plan, though is enormous. First, this huge increase comes hard on the heels of a $15 billion charitable giveaway in the form of forgiven loans to farmers. That came after Sonia Gandhi decided to expand a leaky and questionable rural employment guarantee scheme from some states to the entire country, increasing the scope for greater corruption.
Finally, according to a March 24 analysis by Morgan Stanley, this central government wage hike will surely prompt other state governments and government enterprises to hike salaries too.
That will lead to a massive load on the exchequer. The total impact of all those salary hikes will be $375 billion over the next three years, writes Chetan Ayha in his report. And the combined deficit of the state and central governments will rise from the admirably-controlled 7% currently to 8.5% by 2009.
It will surely damage the central bank’s carefully controlled anti-inflation policies, and it will leave a huge hole in the Indian government’s pockets. Investors and tax payers, this is where your money is going - to an estimated 18 million government employees. Compare that with over 400 million youthful Indians who will soon be of employable age, and to the 14 million youth who enter the workforce seeking employment every year.
Privilege begets privilege.