The government’s decision to set up the 8th Pay Commission for salary revision is hard to reconcile with its oft-vocalized stance in favour of fiscal prudence.
Agreed, the period of the 7th Pay Commission, which came into effect in 2016, will end in 2026. So there was a case for setting up a new one.
Also, acting a year in advance will give the Centre sufficient time to consider its recommendations.
But the timing of the announcement, just three weeks before Assembly polls in Delhi, where India’s ruling Bharatiya Janata Party is trying to dislodge the Aam Aadmi Party from power, suggests an attempt to win brownie points with the electorate.
Delhi houses many central employees and even the state government’s staff can expect pay hikes in tandem with theirs.
What is far from clear is whether these salaries should be raised at all and if the public exchequer can afford to bear the burden of this largesse.
Take these one by one.
Is there really a case for another Pay Commission?
No, according to economist and former chief statistician of India, T.C.A. Anant.
Also Read: Another pay commission? The government should hold its horses
In an op-ed for Mint, he recently pointed out that the typical entry-level wage in government is much higher than at a comparable level in the private sector.
As he put it, a case could well be made that “most government employee salaries need to be adjusted downwards to align their standard of living with what they might reasonably have expected when they joined government service.”
Add to that perks like free or subsidized access to medical care, job security and pension—even under the New Pension Scheme, government employees have an edge over their private-sector counterparts—and the case for a wage hike gets even weaker.
Also Read: The National Pension System was tweaked for flexibility but awaits tax clarity
This is not to say that salary structures in general should not be reviewed periodically.
As chief economic advisor V. Anantha Nageswaran has argued, bigger private sector pay cheques would stoke demand and aid the economy.
The same could be said of all remuneration in India. But why should sarkari salaries mechanically be raised, rather than rationalized, every decade without a comprehensive review of productivity levels?
Also, why should positions, once created, continue in perpetuity?
Pay scales ought to go by market principles.
Also Read: Stagnant wages amid fast economic growth: We need an Indian Enlightenment
One way would be to trace what economists call an ‘indifference curve’ between private-sector and public employment that takes differences in perks and work pressure into account.
At the macro level, large jumps in government pay could play havoc with its finances, forcing budget cutbacks on essential developmental needs that cater to all Indians, rather than just privileged government employees.
Especially since public sector units and state governments usually follow suit.
According to a study by the Institute of Economic Growth for the 15th Finance Commission, “There is a positive and significant impact of salary and pensions on the fiscal and revenue deficit of the central government. A similar association is observed for states where the salary/GDP ratio is found to be positively and significantly associated with the fiscal deficit.”
Since the Centre is committed to a fiscal deficit of less than 4.5% of GDP in 2025-26, down from the 4.9% budgeted for the current fiscal year, and plans to keep that gap small enough for its debt burden to decline as a proportion of GDP from 2026-27 onwards, there is no space for extravagance.
The 8th Pay Commission should bear that in mind and keep its salary increases modest.
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