Pay Panel may not hurt much: IIM-A profs

AHMEDABAD: Even as many are fretting about the effect that the implementation of the sixth pay commission would have on India’s fiscal deficit position, some IIM-A professors say that high GDP growth and significant increase in revenue collections would enable India to absorb this additional cost without much of a problem. In fact, they feel that the disparity between the government and PSU segments vis-a-vis the private sector is so large that such a step is essential to retain good calibre people.

Economics professor Bakul Dholakia told ET that while the 5th Pay Commission derailed fiscal consolidation in 1997 and led to a downswing, the current one would not cause such damage. “With 8per cent GDP growth over the last three years and projected growth of 7-8per cent over the next five years, a quantum addition due to the pay commission is relatively not a huge amount,” says Mr Dholakia.

TT Ram Mohan, banking and finance professor, IIM-A told ET that the government has decided to go ahead with such a step as it is confident that strong economic growth in coming years would enable it to absorb this additional cost. “Buoyancy in tax revenues, especially the service tax collection, which is going up by leaps and bounds as it is applied to more and more sectors, would offset this additional burden,” he added.

Service tax collections have grown 10 times from a paltry Rs 21 bn crore in 1999 to ’00 to around Rs 230 bn crore in ’05-06. Compared to this revenues from excise duty have only doubled from Rs 619 to Rs 1,120 bn crore during the same period. Corporation tax collections have also shot up from Rs 307 to Rs 1,036 bn crore between FY00 and FY06.

Sebastian Morris, also an economics professor at IIM-A, says that the rising crude oil prices are a much bigger worry for India and the new pay commission is not as big an issue as it is being made out to be. “This could possibly be the last pay commission as 5-7 years from now significant changes in the government structure could possibly make such an exercise redundant,” says Mr Morris.

But, all three feel that the government needs to do something about downsizing a lot of the excess manpower at various levels and bring in some measures to reward performance.

“A clear distinction should be made between government departments, public sector units and autonomous bodies like the IIMs. Complete freedom in compensation packages could be given to autonomous bodies,” says Mr Morris. It is such an irony that the heads of some of the largest companies in India like IOC, ONGC and SBI draw salaries which are paltry compared to the crores drawn by private sector head honchos.

Mr Dholakia says that the unfulfilled promises of the last pay commission need to be revisited as little has been done about downsizing of the government machinery. “A complete restructuring of the system is required, and incentive for performance needs to be emphasised,” he added. “There is a steep disparity between the government and private sectors and it has widened considerably since 1997,” says Ram Mohan. “But, a similar hike across all levels is impractical and some differentiation should be brought in with the co-operation of the unions,” he suggested.