- Event: Annual general body meeting of the Indian Police Service (Central) Association
- Issue: The association highlighted the issue of the delay in granting the IPS officers the pay and promotion parity with their IAS counterparts, as recommended by the Seventh Pay Commission
- According to the association, the proposal has been endorsed by the Ministry of Home Affairs, the cadre-controlling authority
- It said that the proposal was pending with the Department of Personnel
- News: Centre has accepted the recommendation of the 7th Pay Commission on Modified Assured Career Progression (MACP)
- MACP: For Central employees, would ensure one minimum promotion for every 10 years till 30 years of service
- Background: MACP was originally introduced in 2008 following the recommendations of the Sixth Pay Commission
- News: After the protest by veterans over OROP, Govt is now facing the ire of the services over the implementation of the Seventh Pay Commission’s (7PC) recommendations
- The 3 services have requested that the implementation of the 7PC recommendations for the armed forces be withheld till key issues are addressed
- Issues: Non-Functional Upgrade (NFU), NFU pay fixation, Military Service Pay, common pay matrix for civilian and military services and allowances
- Discuss: It is contended that the implementation of OROP for the armed forces would create a severe strain on Govt finances. Explain the principles underlying OROP and arguments that have been cited in its support as well as opposition
- News: The Union government has constituted a high-level committee to examine enhancement of Constant Daily Allowance (CDA)
- Context: The decision is a follow-up to the recommendations of the 7th Central Pay Commission
- 7th PC had also examined the principles which should govern the structure of pension and other retirement benefits
- CDA: Paid to retired employees with 100% disability only if disability is attributable to or aggravated during the course of service
- An IIM-Ahmedabad study has found that lower-ranked Central government employees draw significantly higher salaries than those in the private sector
- Even qualified professionals working with the government at the entry level are paid more
- However, the skilled professionals (MD doctor) get higher salaries in private sector than the Central government employees
- In government jobs, the ratio of the top pay to the lowest pay are within a certain band (12-13:1)
- No such consideration applies in the private sector, which might have widened the inequalities
- Context: The government has accepted the recommendations of the 7th Pay Commission
- To examine the concerns employees have raised 4 committees would be set up
- First will look into the implementation issues anticipated
- Second one will go into the likely anomalies
- Third will further examine the recommendations on allowances, which have largely been kept on hold
- Fourth will suggest measures for streamlining the National Pension System
- News: The government has accepted the recommendations of the 7th Pay Commission
- Hikes will be effective from August and will be paid with effect from January 1, 2016
- The arrears for the 6 months will be disbursed during the current financial year (2016-17) itself
- Impact: Salaries of Central government employees will increase; Pensioners too will receive more
- Overall increase of 23.5% for over 1 crore government employees and pensioners
- Compression ratio of 1:3.12 – pay of a Class I officer on direct recruitment will be thrice the pay of an entrant at the lowest level
- News: Finance Ministry would soon propose a 23.55% overall increase in salaries and pensions for more than 1 crore government employees and pensioners
- The proposal is in line with the 7th Pay Commission’s recommendations
- Impact: Cost to the exchequer on this account is estimated at Rs 1.02 lakh crore, an additional outgo of 0.65% of the GDP
- Background: In November 2015, the pay panel had recommended increases of 16% in pay and 24% in pensions within the overall 23.55%
- Context: A committee of secretaries headed by Cabinet Secretary P. K. Sinha reviewing the Seventh Pay Commission’s (SPC) recommendations
- SPC has recommended that overtime allowance, except for operational staff and industrial employees governed by statutory provisions, should be abolished
- Why? Data showed that the expenditure under the head for the Railways and Defence ministries more than doubled in seven years ending 2012-13
- Recommendation: Govt offices need to increase productivity and efficiency there should be stricter control on the Centre’s expenditure under the overtime head
- Additional financial burden on govt in 2016-17 will be Rs 1 trillion
- This is on account of 7th Pay Commission & OROP scheme
- Of this, Rs 73,650 crore will come from the general budget & Rs 28,450 crore from rail budget
- Even if spending is more, govt is confident about achieving FD target of 3.9% for 2015-16
Pay and pension revision recommendations are scheduled to take effect from January 1.
- To meet fiscal deficit target, the Government should merge the basic pay and dearness allowance (DA) of central government employees in the current year.
- On other side, Defer implementing any real increases in pay and pensions.
- This could be done by compensating those who would have to bear the burden of the deferred effect by giving them a more generous award distributed over several years.
- The Government’s fiscal deficit in 2008-09, the year the Sixth Central Pay Commission award was implemented, doubled to 6 per cent.
- Currently, Central government pay and allowances account for 1 per cent of the country’s GDP.
- The delay in 7th pay commission award would allow to keep fiscal deficit close to the targeted 3.9% and 3.5% of GDP for this financial year and the next respectively.
- With a massive financial resource crunch estimated for 2016-17, the govt. is planning to defer the implementation of the 7th Pay Commission award.
- The aggregate Budget numbers would be impossible to sustain on the back of the current trend in growth of tax receipts.
- According to CAG, the tax receipts are just 50% of the Budget estimates after the first 8 months of the year.
- There is also sluggish pace of GDP growth and the almost negative deflator.
The 7th CPC has observed that the pay of defence service officers remains uninterruptedly higher for a 32-year period, and post which pay of defence and civil service officers are at par.
- However, several officers pointed that the officer cadre constitute only 3-4% of the 1.3 mn-strong Army.
- The allowances given to military personnel are 50 as against 90 to civilian officials.
- Disadvantage to Defence forces are due to absence of military members on the panel.
On the fiscal front, experts feel that a burden of Rs 73,000 crore in FY17 may not pose a major problem for the Centre.
- Market experts say, while on one hand it will provide a big stimulus to the economy in coming years.
- On the other hand, it would be inflationary in nature, thus calls for delicate balancing between growth and inflation.
- On the fiscal front, experts feel that a burden of Rs 73,000 crore in FY17 may not pose a major problem for the Centre.
- Analysts feel that it will lead to rise in consumption and will thus provide boost to the economy.
- Crisil pointed out, consumption get boost as states too have implemented wage hikes by a delay of one year and that by perking up household consumption demand.
CPC revisions will facilitate faster improvement in capacity utilisation in the fiscal 2017.
The pay panel has rejcted the demands on graded rates for military service pay, incentives for select ranks from Colonels to Lt Generals and inclusion of Lt Generals in higher income group.
- The commission accepted that the nature of duties of the armed forces is unique and calls for retention of MSP.
- To make Short Service Commission more attractive, the panel recommended that SSC officers be allowed to retire anytime between 7 to 10 years of service.
- Non-functional Upgradation should be extended to the officers of the defence forces and Central Armed Police Forces.
- Seventh Pay Commission, chaired by Justice A.K. Mathur, will submit recommendations.
- For an average 15-16 per cent increase in pay, allowances and pensions for Central government employees.
- It is lower than the 20 per cent suggested by the 6th Pay Commission.
- Commission will submit a recommendation on an alternative approach to the one rank one pension for defence personnel.
- The cost of the recommendations, if accepted, works out to 0.6% of GDP in the 1st year of implementation.
The 7th Central Pay Commission Report
The Seventh Pay Commission, headed by Justice A K Mathur, submitted its report to the Centre in November, recommending 23.55% overall hike in pay, allowances and pensions of government employees from January 1, 2016. This means the Centre’s salary bill will go up by Rs 1,02,100 crore in 2016-17.
The terms of reference of 7th CPC
- To review the principles that should govern the emoluments structure including pay, allowances and other benefits, in respect of the following categories of employees:-
- Central Govt employees (industrial and non-industrial)
- Personnel of the All India Services
- Personnel of the UTs
- Officers and employees of the Indian Audit and Accounts Dept
- Members of regulatory bodies (excluding the RBI) set up under Acts of Parliament
- Officers and employees of the Supreme Court
- To review the principles that should govern emoluments, concessions and benefits, as well as retirement benefits of Defence Forces
- To work out a framework for an emoluments structure to attract the most suitable talent to Govt service, promote efficiency, accountability and responsibility in the work culture
- To examine the existing schemes of payment of bonus and recommend general principles for an appropriate incentive scheme to reward excellence in productivity, performance and integrity
- To review the existing allowances available to employees and suggest their rationalization and simplification
- To examine the principles that govern the structure of pension and other retirement benefits
- To recommend the date of effect of its recommendations on all the above
The recommendations should consider the following criteria:
- Economic conditions in India and the need for fiscal prudence
- Need to ensure that adequate resources are available for developmental expenditures and welfare measures
- Likely impact of the recommendations on the finances of the States, which usually adopt the recommendations with modifications
- Prevailing emolument structure and retirement benefits available to employees of Central PSUs
- Best global practices and their adaptability and relevance in Indian conditions
The above information may be helpful during prelims, though it has little relevance for mains
Now, let’s take a look at the key recommendations
It has recommended overall hike of 23.55% in pay, allowances and pensions of central govt. employees with effect from January 1, 2016
- The minimum pay in govt to be set at ₹18,000 per month
- The system of pay bands and grade pay has been dispensed with and a new pay matrix has been designed
- The Military Service Pay will be admissible only to the Defence forces personnel. <It is a compensation for the various aspects of military service>
- Introduce a health insurance scheme for central govt employees and pensioners
- The force personnel of CAPFs should be accorded martyr status in case of death in the line of duty. <Currently, it is accorded only to defence forces personnel>
- Fair and equitable treatment must be given to all services; or it will widen the gap between the IAS and other services
- A screening committee should be set up to decide on the allocation of officers on deputation to the centre on the basis of domain knowledge
- Introduce Performance Related Pay for all categories of central govt employees
- Take steps to improve the functioning of NPS and establishment of a strong grievance redressal mechanism
Now, let’s analyse various issues pertaining to personnel in govt. sector.
It is a long-pending debate that there are huge disparities between private sector and govt. employees in terms of salaries.
Let’s analyse the difference in salaries of private and govt. employees
- Compensation to Group C and D employees in govt. is greater than the private sector.< More than 90% of the workforce employed by govt. lies here>
- For Group B employees, it is similar to private sector <Govt. workforce includes approx 5% group B employees>
- However, for Group A employees, it is lower than private sector <Govt. workforce includes less than 5% group B employees>
Govt. job offers added benefits, which are not available in private sector
Pay Commission on Performance Related pay (PRP)
What is it : Paying salaries or wages based on performance
Rationale: Human beings respond to incentives. Recognition for good effort and achievement through an incentive is expected to energize and motivate officers to perform even better
What’s the problem in implementing such a scheme?
- How to measure performance of an organization when targets are more in the nature of social and public goods which may not even be tangible?
- How to distribute credit among various departments for such larger public good?
- How to separate individuals from collective?
- How to prevent PRP degenerating into routine entitlements?
The Commission notes it may be easier to implement such schemes in profit-driven private organizations where targets based on quantitative criteria make performance appraisal easier.
Pay flexibility reforms are not a silver bullet, and involve trade-offs and risks. A study of the literature on the subject reveals that employee motivation and performance are not exclusively linked to Performance Related Pay (PRP) which may only enforce temporary compliance.
Yet evidence from many countries indicates that pay flexibility contributes to management improvements, promotes an atmosphere of dialogue, rewards teamwork and is helpful in efficient task allocation.
Two important aspects to be kept in mind before evolving such a scheme:
- Evolve proper criteria to measure performance along with setting a context where individual and organizational goals are clearly aligned
- Devise a performance appraisal system in which the objectives of the appraisal system match with that of the reward system
- Results Framework Document (RFD) can be used as the primary assessment tool for linking the targets of the organization with that of the individuals
- Suitable changes in the Annual Performance Appraisal Report (APAR) can provide the necessary link between targets of the appraisal system with those of the RFD document
Let’s see some of the critical observations of 7th CPC
- The core of govt. employees (excluding security and commercial department) is very small
- Pay, allowances and pension as a proportion of govt. expenditure has been declining sharply. <In 1998-99, it was 38% of revenue expenditure, which has reduced to 18% in 2015-16>
- Pay and allowances in the central govt. have remained stable since 2010-11 at around 1.8%-2% of GDP
- Impact of the pay hike will be .65% of the GDP. However, some increase in the salary comes back to govt. as taxes, reducing the net impact
Often, it is argued that Indian govt. employs less people in proportion to its population. Let’s take a look at it.
Why govt. should hire more?
- Indian govt. employs less than 1.5% of its population with respect to China which employs 3% of its population
- The number of personnel per lakh population is 139 for India, against 668 for the US
- 7th CPC notes there is overall vacancy of around 18% of sanctioned strength
- It has also observed that sanctioned strength is not adequate to deliver adequate governance
- The Union finance ministry has set up an implementation cell for processing and implementing accepted recommendations of the 7th Pay Commission
- Recently, several States have approached the Union govt. seeking more time in implementation of the Commission’s report.
India should implement the recommendations of 7th CPC and II ARC together, reflecting the new mindset. Govt. should be ready to pay its public officials well, increase their strength and invest in building competence.
It’s time for some questions:
- Pay commissions are relics of an age when India was a closed economy and govt. was the major employer. This archaic model has no role in today’s economy and it’s high time India scrapped the system of setting up pay commissions. Comment.
- Private organizations are generally thought to be more efficient than government organizations. What could be the possible reasons for this? How can we make our government system more efficient?
- Salary hikes are generally linked to performance. This truism of management is totally lost in the public sector, where duration of employment is linked to salary hikes. Keeping in view of the recommendations of 7th Pay commission, discuss the pros and cons of performance related pay.
Published with inputs from Pushpendra