The composition of the Eighth Pay Commission has been announced. It will be headed by former Supreme Court judge Ranjana Prakash Desai and IIM Bangalore professor Pulak Ghosh, with the heavy lifting provided by petroleum secretary Pankaj Jain, a senior IAS officer. It is tasked with finalising new pay scales for all government employees. The total number of government employees (all tiers) now numbers over 190 lakhs. These form the bulk of India’s upper and middle classes and are its prosperity midriff. The government is a high wage enclave and getting into this heavily gated community is the dream that inspires 10 lakh applicants, including PhDs, engineers and doctors, for 7,500 openings as police constables in Madhya Pradesh. This dream was seen as so enticing that RJD leader Tejashwi Yadav, before he lost the election, made it his “pran vachan” to ensure one government job for every family in penurious Bihar.
The truth is now staring us in the face. The latest breakdown of sectoral contribution to growth is out. Get ready for this. Public administration, which somewhat perversely is classified as part of services, has now grown by 9.8 per cent in Q1-25 over the same quarter the previous year, making it the biggest driver of growth in India. Very simply, this means that as you keep paying government employees more, the GDP will keep growing ever faster till one day you run out of breath and cash. Public administration, defence and other services account for 14.5 per cent of GDP, which is more than manufacturing (13.9 per cent).
There had been a spate of commentaries about how beneficial the Seventh Pay Commission mandated pay hikes, and approved by the Union government with retrospective effect, would benefit the economy. Despite this munificence, however, some government employees have called the 23.5 per cent across the board hike peanuts! Others have made comments such as “you pay peanuts you get monkeys!” as if you will have earnest and honest public servants because the same fellows get more pay? The metaphor is unfortunate as well as illogical as the “monkeys” are already in place.
The high cost of wages has also slowed down the intake into the government and most departments are hugely understaffed. For instance, the revenue collecting departments are under strength by as much as 45.45 per cent, health by 27.59 per cent, the Railways by 15.15 per cent and that the MHA is under strength by only 7.2 per cent speaks volumes about how much has gone wrong in our system. We have a saying that the main business of government is to collect taxes so that they may be spent for the benefit of all the people. Thus, we see the main business of government is now its least concern.
The sheer absurdity of the logic that higher government salaries are beneficial to the economy speaks volumes of the kind of stupidity that permeates our policy thinking in high places. By this logic if the pay hike was higher, GDP growth would be even higher. But think of this in terms of money denied for critically needed infrastructure and social development such as roads, power plants, schools and hospitals. As if these don’t generate GDP growth? Higher salaries mostly benefit those who get them. Period.
The last pay hike increase benefited 23 million government employees in the Central and state governments and their PSUs. No wonder that top industry and banking analysts have given a big thumbs up the Seventh Pay Commission, stating the move will “boost consumption in the economy” and lead to higher GDP growth.
When the Seventh Pay Commission’s munificence was announced, Didar Singh, a retired IAS officer who was then Ficci’s secretary-general, said: “The pay hike of nearly Rs 1 lakh crores for government employees will give a strong boost to the consumer demand and help uplift the growth of the economy.”
But did Ficci notice the IIM Ahmedabad study which found that “pay in the government sector is distinctly greater than that in the private sector”? The 23.5 per cent average hike in Central government employees’ salaries pushed up the government’s wage bill, including arrears, by an estimated Rs 1.14 lakh crores.
The three levels of government together employ about 190 lakh persons. The Central government employs 34 lakhs, all the state governments together employ another 72.18 lakhs, quasi-government agencies account for a further 58.14 lakhs, and at the local government level, a tier with the most interface with ordinary citizens, we have only 20.53 lakhs employees. In other words, it simply means we have five persons telling us to do this or do that, for every one supposedly serving us. And whom even these one out of six persons are answerable to is still a big question?
Do we then have a big government bearing down on us? Not really.
Consider this: India has 1,622.8 government servants for every 100,000 citizens. In stark contrast, the United States has 7,681. The Central government, with 3.1 million employees, thus has 257 serving every 100,000 of the population, against the US federal government’s 840. Now look at the next tier at the state level. Bihar has just 457.60 per 100,000, Madhya Pradesh 826.47, Uttar Pradesh has 801.67, Odisha 1,191.97 and Chhattisgarh 1,174.62.
This is not to suggest there is a causal link between poverty and low levels of public servants: Gujarat has just 826.47 per 100,000 and Punjab 1,263.34. The troubled states or really speaking the troublesome states actually fare far better on this score. Thus, Mizoram has 3,950.27 public servants for every 100,000 people, Nagaland 3,920.62 and Jammu and Kashmir 3,585.96. Apart from Sikkim, with 6,394.89 public servants per 100,000 people, no state comes close to international levels.
Very clearly, for the most part, India’s relatively backward states have low numbers of public servants. This means staff is not available for the provision of education, health and social services needed to address poverty. It would seem instead of getting better government and more public servants, we are getting more expensive government.
We are now riding the tiger of a high wage enclave of government employees, who also drive consumption and hence GDP growth. Given its populist allure, we can now expect a spate of “pran vachans”. It may now be difficult to get off this tiger.
