Friday, July 28, 2006

Sixth Pay Commission may derail Economy

'The Fifth Pay Commission (set up in 1994) recommendations resulted in a Rs 530 billion payout by the government. The next (sixth) pay commission would effectively wind up Indian sovereignty.'
-- Arun Shourie, former Union minister for divestment, statistics and programme implementation

In an interview to the the former Union ministerSh. Arun shourie has opposed the setup of Sixth Pay Commission.
Read full interview here.


  1. Arun Shourie didn't show any character as minister or disinvester. We cannot expect any different from Shourie. Once upon a time he was a good jurno. But Power(Politics) currupts minds too.

  2. Anonymous10:10 AM

    No surprise. The NDA government in which Mr. Shourie was a minister had done the worst for the employees.They were not ready to constitute the commission. The rightfully entitled merger of DA was also not done in time, and at last when they did it when some elections were nearing, they were not ready to give it retrospective effect from the actual due date. They suspended the LTC facility. Pensions were made contributory. Private consultation under CGHS was withdrawn, and CGHS procedure were made most difficult.

  3. Anonymous2:22 PM


  4. Anonymous12:05 PM

    Economy has not been derailed by pay commissions. Rather, the unprecedented population growth has derailed the economy. And those corrupt politicians who have no role in progress of the country have rather neglected it for their selfish motives. It's high time we solve this buring issue. Which is the crux of the problem. And all economists should think about it rather than clamouring about the pay rise. THE CRUX OF THE PROBLEM IS "SO MANY PEOPLE AND SO LITTLE RESOURCES". How can you expect prices to go down when their is one product and million customers. How can you expect property prices to go down when there is 9000+ people living in 1 sq. km. How can you provide better education, better health and better amenities when there is huge crunch of all these things and they all are alreayd over exploited. And when prices rise, you deny of pay increase. You say it will derail economy. WHAT HAVE YOU DONE TO CONTROL POPULATION?? Any economist can answer me. I never see any serious population control campaign from Government side. Why did'nt P. Chidambaram made a "Population Control Commission" on his first day of joining Finance Ministry. Where from he will bring money for these new babies coming every second to India. He has given thought to it. No, not at all. Rather, no politicial or no intellect of our country has worked serious on population control front. That's why our economy is derailing. And it's just begining. The population burst will make India the crime capital, deceases capital, and corruption capital soon. And Mr. P. Chidambaram will not be able to do anything, anything at all even if he stops paying to Government staff. So, alarming is population situation that all tv channels must transmit a 1 minutes population control ad every half an hour. AM I WRONG??

  5. Anonymous5:17 PM

    The decision to constitute the Sixth Pay Commission (SPC) for central government employees has set off alarm bells in many places. The alarmist view is that the SPC will deal a severe blow to public finances of the sort dealt by the Fifth Pay Commission (FPC).

    These fears are exaggerated. First, it is not true that it was the FPC that devastated public finances. Out of the increase in the combined fiscal deficit of the Centre and the states of about 3.5 percentage points in the nineties, the FPC award accounted for only one percentage point. Tax reductions and increase in interest rates did most of the damage. (Pinto and Zahir, EPW, March 6, 2004).

    Secondly, the SPC promises to be even less of an ogre. Interest rates are lower today. Tax revenues are buoyant. Not least, the workforce in state governments has shrunk over the years. According to the Twelfth Finance Commission (TFC), employee strength in the states fell from 8.1 million in 1997 to 6.7 million in 2003 — a decline of 17% over six years.

    This vital fact seems to have escaped those who have been screaming their heads off about governments accepting the fifth pay commission recommendation on pay hikes while ignoring its recommendation on workforce reduction of 3% per annum. Thanks to the decline in workforce, salaries as a proportion of expenditure (excluding interest and pension) fell from the peak of 41.3% in 1999-00 to 37.3% in 2002-03, about the same level as in 1997-98.

    There is good news on pension payments too. Pension as a proportion of GDP in the states rose from 0.72% in 1996-97 to 1.24% in 2000-01— and it stayed at that level for the next two years. Since 2004, there has been a switch from defined benefit to defined contribution payments. Along with the decline in work force in states, this should cause pension payments to trend downwards over time.

    We do not have current data on the workforce at the Centre. But the trends in pay and allowances are altogether reassuring (see the accompanying table). Pay and allowances in 2004-05 fell off their peaks of 1997-98 and 1998-99 and indeed were lower than before the FPC award. In the face of these improvements, it is hard to argue that governments at the Centre or the states do not have the capacity to pay more.

    But does government need to pay more? This brings us to the principles of wage determination. First, compensation in government must be benchmarked with respect to the private sector. The FPC did use private sector compensation as a benchmark but it did not spell out any desirable ratio of private to public sector compensation.

    The sixth pay commission must make explicit a target ratio for that would provide a basis for periodic revisions in government. Such indexation is indeed in vogue elsewhere in the world.

    The difficulty for government is that compensation at the senior levels is hopelessly uncompetitive while that at the bottom is often superior to market levels. This problem has arisen partly because successive Pay Commissions brought down the ratio of maximum to minimum salary in government, in pre-tax terms, from 54.5 in 1948 to 8 in 1996. The FPC pegged the ratio at 10.7. If the intention is to be market-driven to the extent possible, the ratio needs to go up — this is the second principle the SPC must accept.

    Thirdly, the SPC must examine whether increases in pension that go with salary revision must apply to retirees — or must apply in full. The impact on pension payments can also be limited by effecting an increase in compensation through allowances of various kinds rather than through a steep revision in basic pay to which pension is linked.

    Fourthly, to ensure that states are not severely impacted, the SPC may be asked to recommend a desirable ratio of salaries to expenditure (net of interest and pensions) for states. (The TFC had recommended a ratio of 35%).

    Lastly, the SPC must identify overpaid posts at the lower levels that must not be filled once employees retire. As the states have shown, downsizing through natural attrition is eminently feasible.

    The notion that government salaries can stay frozen can be espoused only by those who believe that nothing good can ever come out of government. The challenge is to devise principles of wage determination that minimise the financial burden while ensuring that talent, motivation and integrity will not be wanting in government. Conditions for doing so could not be more propitious.

    (The author is professor, IIM Ahmedabad)


  6. Anonymous5:31 PM

    There is a great idea for the Government to arrange for paying good pay packets to the employees. The idea is genuine and need great consideration and i am sure it can solve the problem of government. The idea is that Government should sell all its housing facilities for central government employees to pay for good salaries. The Central Government is having 65000 dwelling units available at Delhi for its employees. The construction quality of these units is not so good secondly they are just 4 storey and not well planned. If the Government sells this land for redevelopment to an eligible private firm, it can mop up lakhs and lakh of crores of rupees, which can even change the scenario of Government financial conditions. Secondly, the people will also get good quality housing by private developers. It's high time to think over it for the Central Government.

  7. Anonymous7:05 AM

    Mr Aroon Shourie is a man who thinks that he thinks theright thinghs appropriately, but he only boasts, never thinkks

  8. daya sagar3:01 PM

    India can not afford to pay for inefficiency. More over government even today pays rs. 100 per day to adaily wager . If DW can survive with rs. 100 per day, why can not a government officer drawing rs.20000per month basis pay and nearly Rs.25000 as allownaces can not survive ? In case wage scales are to be revised every 10 years then why make pay scales spread over 15 years or so ?
    Do not loot the poor Indian who is already the pressure of criminals, black marketeers and foreign debt of over rs.1000000 crore . How funny the government servants plan only for them and even a pick poketeer goes uncought by the police .
    No pay revision please. Rather freeze even the present DA.
    Corruption is increasing every day and the youth of India is losing faith in honesty. it is dangerous. Look at this aspact.
    Daya Sagar

  9. Anonymous3:55 PM

    one of the comments offered is that a daily wager earns only Rs.100/- per day whereas a govt servant earns almost Rs. 45000/- p.m. i dont know from where people get these kind of figures. please check up the facts.A superintedent of Central excise after putting in almost 20 years of service may earn not more than Rs. 20000 gross.. i have seen children of secretary level officers get their first paycheque which is considerably more than their parents who may have put in more than 35 years of u want to check corruption by keeping the families of Public servants at minimum wage level?

  10. Anonymous1:18 PM

    I am surprised to know that some people think that wages of government employees should be freezed because they are getting huge salaries. these peope are absolutely misinformed & unaware of the ground realities. People like Mr. Arun shorie are mentally sick & retarded. what he has to say about his misadventures of selling govt. undertakings & hotels worth billion of rupees for pennies. Such people deserve to be thown into the Indian Ocean. Government employess today are the lowest paid employees when compared to Public sector Undertakings, Public Sector Banks leave alone private sector.a peon in the public sector banks get much more then a assistant of the Central Government who is a group "B" official. there should be some justification in deciding salries. If you expect good & honest corruption free services then be prepared to pay good salaries also comensuratre with the prevailing market situatioins.

  11. 6th pay commission has submitted it's report

    - Sanjay Singh

  12. Anonymous7:29 PM

    It's like this you can never say that's govt empl are getting more salary or less salary. I am working in govt sector and i know people worth 5K in pvt sector getting 20k in govt job without doing anything. I know people working with modest salary say 15K compared to a pvt sector similar jon where they may earn 90K.

    It all depends from emp to empl and single yardstick can not be applied to all. And as we all know whenever a good rule is introduced it is abused. Like this one, govt empl will get pay hikes depending on their performance and we know what will be their performance, those who are not working will get better performance than those who are working hard.

    Policies are always good but their implementation is always on wrong side.

    we hope trend may change now,

  13. I would like to comment on the manpower situation and on the pay scales given to armed forces. It is a bogey to say that armed forces are not finding officers. We have seen riot like situation in army recruitment centres where graduates and post-graduates struggle to enter into the Services. As Mr. Mulayam singhji Yadav proposed when he was defence minister, officers should be recruited from the existing jawans and junior and noncommissioned officers. They should be given chance to become officers, instead of depending XII std. pass students to train them in NDA. The jawans who have seen the reality of life in civil and services will be more sensitive to the needs of the nation rather than the raw youngmen catapulted to become officers after one or two years 'vigorous' training in NDA etc. The classcal colonial mindset should change.

    Secondly, if you take into account the free ration, accommodation, paid leave of nearly three months in a year, free travel facilities, subsidized schooling/college facilities, wet canteen and dry canteen faciltiy, free/subsidizded club membership, in service training, free/subsidized transport for self and children to go to school, welfare associations for wives, excellent medical facilities - the list is unending - then the real salary theu are getting - i.e. cost to government - is nearly ten times the pay scale suggested by the pay commission.

    While the jawans and officers who guard our borders, hills, se and air should be paid handsomely when they are posted in the border, they should be treated equal to other civilian officers and staff when they are in peace stations, which is exactly they want - treat as equal to IAS etc. etc.

    Hope the government has the backbone to withstand the prssure from various groups and implement pay commission recommendation for the good of the nation.

  14. Anonymous12:39 AM

    It is nothing but hypocracy of Mr. Shourie. He has a dual character.Character is not what you see in the archlight but it is what it is in dark. Intellectual sophistication won't solve the problems of economy and government employees are not begging. They are merely asking for their dues.If the canon of output ratio is to be applied then what has been done by the private sector. The mother of capitalism i.e. U.S. is suffering at the hands of so called sophisticated money managers of Havard. Every second day one of the biggest conglomerate of U.S. economy is going bust. Billions of dollars of writedown in subprime loans and mortgages are seen. Where went the common sense. Pursuit of over the board returns doomed them.Would you like to have these so called big shots like Chuck Prince of Citibank, O'Neil of Merril Lynch in your organisation. The merit is foremost but so is the honesty.Arun Shourie as a Disinvestment Minister portayed a dichotomous picture. Kanishka Hotel was sold at throwaway prices.If the whole hotel was given on rent to individual shopkeepers or retailers even then it could have generated more money then garnered by the NDA government by its outright sale. Then what was the end use of that money. Without having a proper policy the then government sold prime properties of India. Isn't it a bad economics. The government employees are backbone of any nation and even the U.S. is not able to do away with it. The army personnel,police, administration, judiciary tries to function on a principle of service to the nation which sometimes get disturbed by the vested interests. Otherwise, it is the government employees who are the saviour of the nation and not the politicians who changes their own course many times in a day and keep the employees at a distance.Pay commissions will not tear away the economy of India but the unnecessary tax concession to some particular industrial houses and big shots will definitely do.

  15. Anonymous4:39 PM

    I would like to ask Mr. Shourie a simple question that how much amount he had incurred from the day he became Minister? He could have served the country without taking a penny from the Government. All the politicians should work free if they are sincere and really want to serve the people. They choose politics only to fill their pockets only.

  16. Anonymous4:54 PM


  17. 6th Pay Commission

    By the 6th pay commission a discrimination has been created amongst the
    pensioners. 6th pay commission's differential benefits to pensioners from
    January 1st 2006 is in contravention of laws laid down by honorable
    Supreme Court....