It is a little surprising to note the muted response to the announcement that the 7th Pay Commission's recommendations will be fully implemented with effect from January 1, 2016. Some white collar workers have even threatened a strike claiming that the pay hike announced is meagre. According to the professional agitators, whereas the lowest minimum pay should have been raised to Rs 23,500 per month from the existing Rs 7,000, it has been increased to "just" Rs 18,000. However, it can safely be said that once the new pay packet actually comes in next month, the ardour for protest will lessen considerably.
Although there are many sceptics who will contend that the infusion of approximately Rs one lakh crore into the economy by way of this bonanza will result in a demand push and consequent inflationary pressure, the government could not have avoided implementing the award by a statutory body. Regardless of the inevitable demand push, the question is whether that is necessarily a bad thing? Arguably the economy is growing at an impressive 7.6 per cent per annum. But it is also apparent that consumer demand remains sluggish and new jobs are not being created. This has resulted in the feeling that the Modi Government's well-intentioned schemes have fallen short of delivery and failed to match the expectations generated by the Prime Minister's feisty election promises.
To combat the sullen mood about the slow progress of economic indicators, it was essentially to inject some adrenalin into the system. So, even at the cost of pushing up inflation, the government had to take a calculated risk and announce implementation of the Pay Commission recommendations. Further, it clearly does not want to delay the release of the backlog. As the new salary scales will be implemented from January, the backlog will not be as large as it has been in the past. Further, liquidity will thus flow quickly into the system giving it the necessary spurt.
The government has been helped in pursuing this ambitious strategy primarily because Finance Minister Arun Jaitley's deft management of the economy has restricted fiscal deficit to 4.7 per cent, tantalisingly close to the projected figure, an extraordinary achievement by contemporary standards. A word of praise is also due to the much-maligned outgoing RBI Governor Raghuram Rajan and his dogged refusal to lower interest rates, thereby keeping inflation in check till now. Therefore, when inflation starts mounting after disbursement of the Pay Commission's bonanza, it will hopefully still remain under control and not jump to double digits.
The Indian middle class has been straining at the leash for the government's tight money policy to ease so that it can go for enhanced purchases both of immovable assets and consumer durables. The pathetic state of India's real estate sector is already apparent to all. At one end, there is oversupply in certain regions such as Delhi-NCR, while high prices have kept buyers away in almost all regions. Further, both buyers and sellers are yet to come to grips with the Modi Government's crackdown on black money; they are still bewildered by how to pay the entire sum involved in real estate purchases in "white". The government's intentions are laudable, but needs backing with greater liquidity in the market and more purchasing power in the hands of buyers. Therefore the implementation of the Pay Commission report has come at a most appropriate time.
Additionally, the liberalisation of the Model Shops and Establishments Act to allow retail business enterprises like restaurants and cinema halls to stay open 24 hours if so desired by their owners is a bold and welcome measure. It ties up with greater spending power in the hands of consumers. Longer shopping hours are expected to lead to greater employment in shops and malls. Today, even Tier 3 cities boast of well-equipped shopping malls, and job growth is likely in these centres too, especially if the monsoon delivers as predicted.
Generally speaking, private sector employees earn more than their public sector counterparts post-to-post, though perques such as subsidised housing are benefits which only government staff get. Over the years, the gap between salaries in the private sector and the public sector has been narrowing. In order to retain talent in its establishments, the government has been compelled to enhance salaries of its non-core employees such as teachers. With the advent of well-heeled private universities, for example, teachers who had no option other than to work on UGC scales now have a choice of opting for better-paying private teaching jobs. The drain from government-run healthcare institutions to private hospitals is also well known. The 7th Pay Commission has made one more effort at removing this anomaly so that the migration from specialised government hospitals like AIIMS can be stalled.
These two examples are significant because in an increasingly market-driven economy, it is the social sector which will remain the government's primary responsibility. Consequently, the need for quality personnel becomes an imperative. And when the government competes in the open market to recruit staff for essential services like healthcare and higher education, it will need to pay better salaries that at least match, if not exceed, private sector pay.
As the government's emphasis shifts to spending more on the social sector, it will need to balance this with job cuts in non-essential sectors. Retrenching staff is a touchy issue in India especially because the country lacks an adequate social security net. The Modi Government has introduced new insurance-based schemes that will gradually emerge as substitutes to a full-blown social security net. With over 50 lakh direct employees and a staggering 58 lakh pensioners, the government has to delicately balance the twin demands of keeping its existing staff and future recruits happy, while cutting down on its salary budget.
Even as the regime tries to keep its employee-related expenses under control, it can only hope that the Pay Commission bonanza will spur its staff to go for additional spending. The real estate sector, along with automobiles, electronic goods and financial markets, will be among those expecting to get a slice of the projected additional spending. It is widely hoped that the Pay Commission pay-outs will act as the trigger to shake the retail economy out of somnolence.
But the bigger part of government spending must be earmarked for the infrastructure sector and its components like cement and steel. These sectors too deserve incentives to combat the dumping of cheap Chinese products. The government is obviously hoping that more FDI will flow into the market with the opening up of major sectors like defence. But that cannot be assumed as foreign investors would wait and watch the impact of additional purchasing power in people's hands before committing more funds into Indian industry.
But for the first time, a Pay Commission report has been implemented in tandem with several measures aimed at giving a huge push to the economy. This composite approach seems sure to succeed in the coming months.
(Dr. Chandan Mitra is a journalist, currently Editor of The Pioneer Group of Publications. He is also BJP MP of the Rajya Sabha.)Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.