7th Pay Commission | Need, Implications, Suggestions

Why in news?
Soon to give its recommendations for periodic revision of wages government set up wage revision commission. (set up such Commissions every 10 years to recommend the wage/ pay revision - this time under under the chairmanship of Justice Ashok Kumar Mathur)

Implications:

• POSITIVE:
• ECONOMIC:
• Growth boost as people spend more
• Probable increase in tax collection - both direct and indirect taxes
• Facilitate investment and savings.
• Indirectly - facilitate capital formation and will push economy in growth mode
• Attracts best talent from the private sector
• Motivate employees
• Monetary driven motivation can lead to enhanced productivity
• Less corruption
• More job satisfaction
•  NEGATIVE:
• Fiscal Deficit :- Welfare expenditure or increase in tax can not be done being welfare state --> so it lead the more borrowing which increase the Fiscal defecit.
• Deficit target will be at risk
• Havoc on government finance
• Inflation
• Put pressure on the state governments to implement it in the same manner as centre
• Demand by other employees
• Will put pressure on private sector as well to bring the salary at par
• No effect on the conditions and income of daily wage earners and casual labourers

Suggestions:

• Rationalise workforce: 
• Make the workforce lean and efficient.
• Training govt employees who are surplus and shifting to Human Resource deficit department.
• Rationalise hike:
• Employees in Group 4 and smaller cadres like peon, clerks, operators etc are already very high in pay scale when compared to their private counter part. So, there salary revision should be as per the market rate.
• Link to performance: 
• Steady deterioration of quality in govt employees specially in lower cadre is found, reason being they are paid higher than private sector, but reverse for higher cadre where actual need of efficient and intelligent people is there, we find less capable people because good employees leave for private sector. So, performance based bonus and allowances should be there.

Why is it important?

• Impacts government spending and fiscal deficit (FD).
• To maintain FD, govt will cut spending on other items including capital expenditure.
• Increased pay --> stimulus to the economy by boosting the consumption leg of GDP
• The country’s fiscal deficit is a cause for concern as it impacts tax policies.
• More $ for  government employee, retiree or a job aspirant, 
• For investor consumption is a theme to bet on — there is a co-relation between pay commission increases and discretionary spending in urban India. Higher disposable income in the hands of the people could aid automobile and property sales.

The bottomline

It matters to the economy, to the deficit and to your portfolio