Calcutta Notebook

Salaries of Government Employees

Bharat Jhunjhunwala

The objective of the government was to secure the welfare of its citizens according to the Constitution. Indeed, government employees are to be appointed to secure welfare of the citizens. However, the welfare of the government employees them-selves, and not the citizen, has become the primary objective of the government today.

According to a World Bank study titled “Government Employment and Pay in Global Perspective”, the average salary paid to government employees was 0.9 times of the per capita GDP of Vietnam. In other words, the average salary paid to government employees was Rs 90 if the average income of the Vietnamese citizen was Rs 100. On the same reckoning, China paid an average salary of Rs 110. The average salary paid to government employees in India, however, was 7 times the per capita GDP or, Rs 700 on the same reckoning. Unsurprisingly Vietnam and China have both outpaced India in GDP growth rates. Might this be the reason?

Another study by the World Bank tells that the global tendency for government consumption has been to move downward in the last decade. The share of government consumption in GDP globally was 18.0 percent in 2009. This reduced to 17.2 percent in 2014 and 17.1 percent in 2019. According to the budget papers of the Finance Ministry, the share of Government consump-tion in India increased from 10.4 percent in 2014 to 12.6 percent in 2020. The salaries of the government servants in India are not only disproportionally high but they are going up and up. This increase is even more disturbing in view of an International Labour Organisation study reporting that the wages of workers in the formal sector in India have declined by 3.6 percent and in the unorganised sector by 22.6 percent during the Covid-19 pandemic. Salaries of the government employees appointed to secure welfare of the citizens are going up; while the salaries of the citizens is going down. Is this the Constitutional mandate?

The condition of the state governments is worse. The Government of Kerala spends 70 percent of its revenue in paying salaries to its employees; while Tamil Nadu spends 71 percent. A headmaster of a school gets a monthly salary of Rs 103,000 in Tamil Nadu. A headmaster in a comparable private school may be getting Rs 15,000—and the latter begets better results. This leaves little money with the State Governments to spend on welfare of their citizens. The government has become a huge vacuum cleaner that is sucking every penny from the hands of the citizens and providing it to the government employees.

These high wages comparable to the organised private sector have been recommended by successive Pay Commissions to attract competent workers in the government. There is a crucial difference between the two, however. The high salaries in the private sector have a bearing on the competence and efficiency of the worker. Not in the government. The high wages paid to the high-end government employees become applicable across-the-board to all employees including the less educated persons like peons and gardeners. All headmasters in Tamil Nadu draw a salary of Rs 103,000 per month irrespective of the results begot by their respective schools. No wonder another study by the World Bank titled “Are Public Sector Workers in Developing Countries Overpaid?” says that the less educated and lower level government employees are paid much higher salaries in comparison to their counterparts in the private sector.

The conclusion is clear. High salaries paid to the fewer high level government employees have become a smokescreen behind which the lower level employees are given huge salaries.

The high salaries of the government employees in India have actually come along with rampant inefficiency. The Fifth Pay Commission had explicitly said that it was recommending increase in salaries as a combined package that should be implemented along with steps to improve efficiency such as external evaluation of Class “A” officials every five years. The government, in its wisdom, raised the salaries more than that that recommended by the Commission but shoved the accountability measures under the carpet. The Sixth and Seventh Pay Commissions have made similar empty statements about raising efficiency.

The way forward is to make a huge cut in the salaries of the government employees to bring them at par with the fast-growing economies of Vietnam and China. That would require an 85 percent reduction and bring the average salaries of government servants in India at par with the average income of the Indian citizen. The Government may consider a 50 percent reduction in the first step. The money saved may be distributed in cash to the citizen in keeping with the principles of the welfare state. This will generate a huge demand in the economy and also jumpstart the economic growth.

[Formerly Professor of Economics at IIM Bengaluru.]

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Vol. 54, No. 9, Aug 29 - Sep 4, 2021