Dec 122015

Cascading effect of pay hike

The hottest topic of discussion among the central government employees is the 7th pay commission. It is expected to be implemented from the next financial year. The recommendations have already been made to the government. On average, it includes a 23% hike in pay and allowances. The minimum pay is will be set to Rs. 18,000 and the maximum amount goes to Rs. 2.25 lakh per month, which is that of the cabinet secretary. Presently the max salary is 90,000 per month. The ceiling for gratuity will also be raised to Rs. 20 lakh that is Rs. 10 lakh right now. Though these are recommendations, but the union government will have to implement them without modifications.

After the 7th pay scale is implemented, the government is expected to spend Rs. 1.05 lakh crore more on salaries, allowances and pensions per annum. It will have a bad effect on the union budget. Other expenses, like education and infrastructure, might not get as much money as they do today. For state governments, the effects will be even worse. After the 7th pay scale in center, state employees will also expect and demand a hike. The employees of West Bengal have already started asking for a raise. This affect will resonate across the country.

If we only consider West Bengal for now, its salary bill presently costs Rs. 33, 650 crore. If we also include the retirement benefits, the total expense goes to Rs. 47,218 crore. This means that out of their total annual revenue of Rs. 105,978 crore, slightly less than half is spent on salaries. If the salaries are raised, it will get an even bigger slice of the total revenue. The state government will then be left with hardly anything for development. West Bengal already has a debt servicing charge of Rs. 28,000 crore per month. Chief Minister of the state has repeatedly requested a moratorium on this amount for the next three years. Only then the state will be able to fulfill its social and political needs. But these requests have not been heard by the center.

Besides the issues mentioned above, inflation is also a very big problem associated with pay hike. The landlords in Delhi will increase the rents the same day 7th comes into play. Though the pay hike is considered as a gift from the government to its employees, it will bring many problems for the citizens. Thus, there is a need to take a fresh look at these issues before taking any steps.

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