There are a couple of riders to this. First, the government is committed to One Rank, One Pension for the armed forces. This would impose an as yet undefined burden on Central government finances. Second, while the aggregate macroeconomic impact may be bearable, the impact on particular States tends to be destabilising.
It is often argued that periodic pay revisions would be alright if only the government could bring itself to downsize its workforce — by at least 10 to 15 per cent. From 2013 to 2016, the Central government workforce (excluding defence forces) is estimated to grow from 33.1 lakh to 35.5 lakh. Of the increase of 2.4 lakh, the police alone would account for an increase of 1.2 lakh or 50 per cent. What is required is not so much downsizing as right-sizing — we need more doctors, engineers and teachers.
Downsizing of a sort has happened. The Sixth Pay Commission estimated that the share of pay, allowances and pension of the Central government in revenue receipts came down from 38 per cent in 1998-99 to an average of 24 per cent in 2005-07. Based on the budget figures for 2015-16, this share appears to have declined further to 21 per cent. In financial terms, this amounts to a reduction of 17 percentage points over 17 years or an annual downsizing of 1 per cent. It’s a different matter that it is not downsizing through reduction in numbers of personnel.
Improving service delivery in government is the key issue. Periodic pay revision and higher pay at lower levels of government relative to the private sector could help this cause provided these are accompanied by other initiatives. The macroeconomic impact is nowhere as severe as it is made out to be.
(T.T. Ram Mohan is professor at IIM, Ahmedabad)