April 7, 2008

Burden of sloth

We distribute vast quantities of foodgrain through our public distribution system. The finding is 36 per cent of the foodgrain does not reach the poor. We have laid out the largest guaranteed wage employment programme as a safety net for the poor.

The finding is that there are pockets in India where this programme is not giving the guaranteed wage to the very poor. We have the largest school lunch programme in the world; 130 million children eat a school lunch. The finding is that the quality and the quantity of the food at many places leaves much to be desired. We have very large road building programme. But many of the roads that are laid are of such poor quality that they have to be re-laid every five years, they vanish after three or four years."

This is not the rant of an academic. It is Finance Minister P. Chidambaram describing the quality of governance in the country at the India Today Conclave on March 15. Ten days later the Sixth Pay Commission, headed by Justice B.N. Srikrishna, submitted its report arguing the case for a 42 per cent rise in salaries of babus. (See graphic: Pay and pension expenditure)

The hike will add Rs 12,561 crore to the Centre's salary bill of Rs 53,497 crore taking it to Rs 66,058 crore. Add to this Rs 18,060 crore in arrears as the hike will be effective from January 2006 and Rs 1,365 crore towards higher pension. If the political hurrahs are any indication, in a few weeks the panel's recommendations will be formally accepted. In return, the taxpayer cannot expect anything because there are no performance guarantees.

Given the expectation of polls and the season of sops, the only intervention will be in favour of a higher hike, not on delivery. The distance between the need for reforms and the absolute lack of political will has never been greater. The pathetic state of governance Chidambaram spoke about will continue to be the subject of lament.

The commission has offered the carrot but there is no stick in sight. There is no mechanism to make the babudom more accountable. Only, taxpayers will be paying a higher price for the sloth in the system.

Prey commission

George Bernard Shaw should be quoted. "A government that robs Peter to pay Paul can always depend on the support of Paul." Given the Sixth Pay Commission recommendations, robbery is an appropriate term. Unlike theft, there is use of force, exercised by the government. In reacting to salary hikes proposed, we forget that economics is about allocating resources with competing uses.

A Central pay commission isn't about Central Government and its 3.5 million employees alone. It will inevitably extend to state government and quasi-government bodies and cover around 45 million people. The overall impact will be around 1 per cent of GDP (less than Fifth Pay Commission's 1.5 per cent, because DA hikes have been larger since then). The point isn't whether buoyant revenue can absorb this 1 per cent shock.

Even if it can be absorbed, these are resources that could have been spent elsewhere. Unless one can demonstrate these hikes will result in efficiency improvements and increase the size of the cake, this is a transfer from 375 million who work outside the government to 45 million who work for government and quasi-government bodies.

It is not only a transfer, it is a regressive transfer, because 375 million are the relatively poor and 45 million are the relatively rich. And that might be warranted had there been a real improvement in efficiency. Efficiency is individual. It can't be collective. The moment one has a concept of grades and scales, one assumes rewards based on average productivity (which is collective) and not on marginal productivity (which is individual).

This is like saying that regardless of where one wishes to go in a city from the airport, the cab fare will be the same. This may be easier to administer (taxis needn't have individual meters), but is nonsensical if one is stimulating efficiency. True, private sector also has grades and scales.

But it permits greater deviations and allows incorporation of individual performance-linked rewards. This is impossible within the government system, where bonuses also become guaranteed. Of course, there is wheat within the government system. But one can't differentiate wheat from chaff. One would have bought the efficiencystimulating argument, had there been individual contracts de-linked from scales.

Since 90 per cent of government jobs covered by the pay commission are Classes III and IV, one can't be serious that pay commission hikes will improve efficiency or governance. Indeed, governance will improve far more if we implement even 5 per cent of assorted civil service reform recommendations articulated in assorted commissions, committees and task forces.

Any pay commission recommendations would have been more convincing, had one included imputations for perks, housing, other allowances, five-day weeks, complete security of tenure and worked out CTC recommendations for government servants, with FBT provisions included. In India's workforce, a small percentage is integrated into the global labour market, with incomes that are global, adjusted perhaps for PPP (purchase power parity). That's because these people can freely enter (and exit from) the global labour market.


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