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A big-ticket reform idea for salaries

By Surjit S Bhalla
July 22, 2006 13:59 IST
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The UPA government has not set the Ganga on fire with its policies of economic reform. Actually, for that matter, and excluding the gains in foreign policy, this government, at best, has been regressive.

A legitimate question arises: what can the government do to extricate itself from its self-imposed immobility, and yet be true to its dharma of the public sector? As it happens, the new Pay Commission comes at an opportune moment.

In my view, it provides an ideal opportunity for the government to bring in seemingly mini-reforms, reforms that pass the smell test of Delhi-based Communists and other intellectuals. In terms of its impact on India, this mini-reform will be huge. And the monies involved are not very large.

The estimated cost of the Pay Commission awards is around Rs 20,000 crore (Rs 200 billion), or about 0.6 per cent of GDP. The expected gain from following this public sector-enhancing policy is around that much extra output each year.

In case you are wondering, why such an enhancement of earnings, it is for the bureaucrats to help serve you better, even though their jottings on the margins of the files will never be open to public scrutiny.

The present Babu system of governance enforces a very, very old rule. This rule emanates from the time when the Babu was nicely paid, and actually performed services commensurate with her pay. In largesse that only the socialists possess, the government decreed that everybody should be paid "equally".

And "equally" meant that across the public sector spectrum, salaries were broadly linked to educational levels, and narrowly linked to the pay scales prevailing at the Centre. While this had some logic for jobs not requiring higher education, it made no sense to link jobs of professionals (those with high levels of education) to salaries of senior government officials.

For example, what sense did it make in 1970 for the salary of a senior official at the State Bank of India to be linked, and made equal, to that of an official working on food procurement? I am not saying whose salary should be higher, only that there isn't any logic in linking them.

What sense is there in linking an IIT professor's salary to that of a joint secretary in the ministry of education? Or the compensation of the chairman of ONGC to the salary of our ambassador to the US? Now if it did not make any sense in 1970 to link these salaries, it makes doubly less sense today.

In the olden days, India was a closed economy, and government officials were involved in determining the lives of its citizens. The situation was such that even to take a leak in the street, one had to ask for permission.

In this sense, the "productivity" of the Dilli ka babu was very high, and consequently, mild-mannered scientists undertaking space research were given gifts if their salary levels matched those prevailing in Delhi.

Today, the competition for talent is not from the babus, or even from the IAS. Indeed, if the Right to Information Act finally is given some teeth (unlikely), one can determine if the capability and ability/standards of the average IAS/IFS official have fallen.

We can even determine (since the government does have this information) whether the capability level of the best and brightest new entrants into the IAS/IFS have fallen relative to their peak levels of about 1960.

So I have a win-win solution for GoI employees, and those in the public sector. First, the government qua government (i.e. administrations at the Centre and states, including members of Parliament at the central and state levels) are accorded superior status and defined as a law unto themselves - as is their due.

The Pay Commission should determine their salaries, and, if need be, increase them by double the amount they were planning to. As a quid pro quo, the government removes all links with its own salary levels.

So a professor of history, or of electrical engineering, or a cleaning official at the Indira Gandhi Institute of Development Research, or a trader at the SBI, or the governor of the RBI, or the chairman of the UTI - all will have their salaries determined by the market, as is the case of 400 million workers in India, and at least 3 billion people in the world.

Doing this will only enhance the competence and profitability of the public sector, and the government need never sell its jewels. But it is important to arrest the steep decline in the morale and quality of our (public) institutions.

Delhi University is not half as prestigious today as in the mid-sixties. Why? Because the university cannot recruit, and reward, the bright, let alone attract the brightest. So professor quality goes down, the students learn less, less bright teachers are recruited in the next round, and the government-induced murder of an institution reaches a successful end.

If the government does not want to privatise any public sector corporations (as it does not), and if the government wants to improve the performance of various sectors under its control, e.g. education, and if it wants to make Indian industry more competitive, and if it wants its banks to be of world standards, then a necessary and, my bet would be, sufficient policy is to bring about this very limited labour reform: salaries of non-administrative officials of the government of India will henceforth be no longer set by the Dilli babu. Short, simple, and very sweet.

The Big Bang of reform will be engineered by very small, but thoughtful, bucks.

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