We are in the middle of a process to neutralise the impact of the Nehruvian thinking of running a country. From economy to foreign policy, the current regime of Prime Minister Narendra Modi is showing a lot of determination to change the traditional mindset in a new era where market has taken over and the world is no more a rigid, bipolar one. [Seventh Pay Commission: 10 things in a capsule]
The Modi government has also shown a positive intent by taking on the culture of subsidy which has been prevalent in our economy since ages. Even as the country's financial health has improved in leaps and bounds, the application of the subsidy economy has not learnt to change the course.
Even those with thick pockets continue to claim subsidised cooking gas when they can do without it. Modi's expectation that millions of Indians would give up subsidised cooking gas from the word go has not been met which is understandable for old habits die hard. But at least his initiative to effect a change is a welcome one.
Why can't a reformist PM Modi scrap the pay commission culture, just like he is against the subsidy culture?
But at the same time, the question can be raised as to why the prime minister, who is known to have a reformist mind, is not addressing the issue of pay populism in a fresh way?
On Wednesday (June 29), the Centre approved recommendations of the Seventh Pay Commission to effect hikes in the salaries and pensions of government employees and retired personnel. The hike has made several state government employees unhappy over the growing divide in their salaries with those of the central employees. Why not discourage this practice of oiling the well-oiled machinery and channelise the money to secure lots that are facing serious threats to their survival---like the farmers?
Seventh Pay Commission was formed before time by UPA with an eye on the 2014 general polls
We all understand that pay populism is a game of continuity that those in power are compelled to play. The previous prime minister, Manmohan Singh, had approved the formation of the Seventh Central Pay Commission in late 2013 even though the sixth commission had two more years to go and one doesn't need to be wise enough to understand that the then UPA government rushed it as one of the several steps it had taken to beat the political challenge that Modi had thrown at it ahead of the general elections of 2014.
Why allow social and financial repercussions because of the 'one-fits-all' model of pay revision?
But do any of these governments take into account the social and financial impact of this pay populism? Not only the recommendations of the pay commissions impacts the exchequer and the financial state as a whole but the growing gap between the salaries of various government staffers also gives rise to a frustration which can widen seriously.
The en-masse hike validates George Akerlof's thoery of Quality Uncertainty: Why make quality suffer?
Leaving aside the rise in expenditure apart which is more a question of finance, what is the merit of appointing successive pay commissions when there is no application of the logic to assess the employees' performance and merit? Going by the 'quality uncertainty' theory of George Akerlof, the Nobel-winning economist, why should there not be a mechanism to differentiate between the market values of employees? Why should every government employee get hike en masse despite having shown more or less productivity?
Being an economist-politician who had played a major role in liberalising India's economy, Singh did not have the will to make government employment a field to be influenced by market-like forces. Is the Modi-Arun Jaitley duo also not feeling bold enough to initiate the much-needed reform on those lines?
The pay populism to oil the middle-class for votes need to stop
The pay populism is mainly aimed at getting the blessing of the mammoth government employees' block during the election, more than perhaps attracting more talents to the government sector. For, if the government continues to treat all at par irrespective of the productivity and sacrifice quality at the altar of quantity, even the cream of the talent will not feel interested to join the sector even at a high wage price. So, the relentless hike in the pay is ultimately going to defeat the very purpose it is supposed to serve.
Why can't we borrow from the USA's idea of 'Quality Step Increase'?
PM Modi, just like he has spoken against the subsidy culture, should also bury the culture of having a pay commission and make the business of hiking salaries more rational. Can he borrow the idea of 'Quality Step Increase' from the US---a country with which he is having a fantastic rapport to ensure that mediocrity does not replace merit in his own country?
But can Modi take the brave call? It is after all, fraught with electoral risk
But there is very little possibility of the Modi regime reversing the process. The reason is the huge middle-class. After ruling for two years, the prime minister has understood very well that it is the interest of the middle-class which ultimately sets the tone for everything in this country and it could be a double-edged sword as it was seen when Modi's finance minister had decided to impact the PPF---the long-term security of this massive powerhouse of the economy.
The middle-class's habit has been ruined by the political class over the years and that has been evident at times when Modi has appealed for giving up LPG subsidy. Giving up subsidy or not is still an option for the teeming millions but if the government forces a decision by scrapping the pay commission and undertake the huge project of judging its employees by their efficiency, then the backlash could be unthinkable.