Friday, July 1, 2016

What does the 7th pay panel mean for govt. employees?


On Wednesday, the Union Cabinet approved the recommendations of the 7th Pay Commission (PC) on pay and pensionary benefits.

Here is an overview of the beneficiaries – central government employees and pensioners – and the budgetary implication of these recommendations.

How much would this cost?

If all recommendations of the 7th PC are considered, it will cost the government an additional amount of Rs.1,02,000 crore.

The government has cleared the pay (increase in expenditure by 16 per cent) and pension (increase in expenditure by 24 per cent) related recommendations that will cost Rs. 84,933 crore. Of this, Rs. 60,608 crore will be borne by General Budget and Rs. 24,325 crore from Railway Budget. Note that Rs. 70,000 crore was allocated in the Union Budget for implementation of the 7th PC.

For the remaining amount, which concerns recommendations around various allowances (increase in expenditure by 63 per cent), the government has set up committees to review the recommendations.

How much would be spent on Pay, Allowances and Pension as a proportion of GDP?

Over the last few years, Pay, Allowances and Pension (PAP) spending constitutes around 2.8 per cent of GDP. Additional expenditure, that includes all recommendations, will lead to an increase in 0.65 per cent of GDP on PAP, which is less than 6th PC, which led to an increase in 0.77 per cent of GDP on PAP.

Source: 7th Pay Commission Report

The 7th PC report says: “The Commission is of the view that this represents an extremely reasonable increase in the PAP-GDP ratio in the initial year of award. In future years this ratio will in fact decline, as GDP growth is expected to be faster than the growth rate of inflation in future years.”

How much proportion of total Union Budget is spent on salaries and pensions?

As of 2014-15, 7.8 per cent of total expenditure is spent on salaries and 4.6 per cent of total expenditure is spent on pensions.
Source: Indian Public Finance Statistics, Ministry of Finance; PRS
*2013-14 (Revised Estimates)
*2014-15 (Budget Estimates)
Spikes were observed after recommendations of 5th and 6th Pay Commissions were implemented.

What does Economic Survey 2016-17 say about 7th PC recommendations?

a. 7th PC implementation will bring increased spending from higher wages – boosting consumption.

b. The experience of 6th Pay Commission – with greater hikes – suggests that 7th PC will not destabilise prices nor will it increase inflation.

How many people will be benefited?

The Pay Commission concerns salaries and pensions of the Central Government employees. As of 2014, there were around 47 lakh central government employees. Armed forces happen to be the biggest employer, with 14 lakh employees. Pensioners – 52 lakh – are more in number than working employees.

What is Central Government’s share in organised sector employment?

The Central Government employed 8.5 per cent of the organised workforce in 2012. Its share in organised sector has declined over the past 15 years.
Source: Economic Survey of India; PRS
Between 2006 and 2014, all ministries (except Ministry of Home Affairs) witnessed a decrease in number of employees.

Who are the pension beneficiaries?

Source: 7th Pay Commission Report; PRS
Of the 52 lakh Central Government pensioners, 46.5 per cent belong to defence personnel – the largest proportion. PRS Legislative Research report says that “the large proportion of defence personnel among pensioners may be due to the early retirement age of defence services personnel as compared to other government departments.”

Railways comes next which has a share of 26.5 per cent among pensioners.

How do government salaries compare to the private sector?

As per the 7th PC report, at lower levels, salaries in government jobs are higher than in the private sector. These are understood to be Group C employees – those providing assistance – which constitute 88.7 per cent of all employees.

For example, a general helper – lowest ranked employee in the government – earns Rs. 22,579 per month in government job but around Rs. 9,000 in private job.

Source: 7th Pay Commission Report; PRS

But at the highest echelons of governance, the compensation in government is nowhere comparable to their counterparts in the private/public sector, says the 7th PC report. These are understood to be Group A employees – occupying higher administrative positions in government – which constitute 2.8 per cent of all employees. In light of this, the Commission has accorded slightly higher index of rationalisation at the level of Senior Administrative Grade and above.
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