The report of the 14th Finance commission of Government of India on Pay and Pension of Government employees in its paras 17.23 to 17.30 is reproduced below .
Its report has its impact upon the 7th Central Pay Commission to draw its report for submission to the Central Government
Pay and Productivity
17.23
Wages and salaries constitute a significant portion of the
committed liabilities of both the Union and States. Periodic revisions based on
the recommendations of the Pay Commissions of the Union, with States following
suit, have contributed to rising revenue expenditure. For States in particular,
the fiscal impact of a pay revision is severe, as the share of salary
expenditure in their total revenue expenditure is substantially larger than in
the case of the Union. Arrears in pay and bi-annual releases of Dearness
Allowance compound the burden.
17.24
Technically, the
recommendations of a Central Pay Commission are only for Central Government
employees and States are not bound to follow suit. Indeed, up to the 1980s,
States constituted their own Pay Commissions and prescribed their own pay
scales, based upon their fiscal capacity. However, since the Fifth Central Pay
Commission, salaries and allowances in States have tended to converge with
those in the Union Government and since the Sixth Central Pay Commission,
almost all States have adopted the Union pattern of pay scales, albeit with
modifications.
17.25
An internal study by the Commission brought out the fact that
the Union Government's expenditure on pay and allowances2 (including
expenditure for the Union Territories) more than doubled for the period 2007-08
to 2012-13, from Rs. 46,230 crore to Rs. 1,08,071 crore.3 This increase can be
largely attributed to the implementation of the Sixth Central Pay Commission
recommendations, evident from the per employee annual salary (excluding defence
salary) increasing from Rs. 1,45,722 to Rs. 3,25,820 over this period.
Moreover, the share of expenditure on pay and allowances in revenue expenditure
(net of interest payment, pensions and grants-inaid) increased from 11.8 per
cent in 2007-08 to 13.1 per cent in 2012-13. The incidence of salary
expenditure is much higher in the States than in the Union. In 2012-13, the
share of expenditure on pays and allowances of all employees in the revenue
expenditure (net of interest payments 2 Excluding productivity linked
bonus/ad-hoc bonus, honorarium and encashment of earned leave, and travel
allowances. 3 If salary of defence services is included, the corresponding
figures will be Rs. 73,073 crore and Rs. 1, 84,711 crore. 239 Chapter 17 :
Public Expenditure Management SERVER 3\E\3374FINANCE (CHAPTER 17) and pensions)
among the States ranged from 28.9 per cent to 79.1 per cent. Per employee (for
regular employees) salary in 2012-13 across States ranged between Rs. 2,12,854
and Rs. 5,49,345. Thus, the impact of revisions in pay scales on fiscal
positions is uniformly significant, though it varies widely across States.
17.26
Given the variations across States and the lack of knowledge
about the probable design and quantum of award of the Seventh Central Pay
Commission, we believe that it is neither feasible, nor practicable, to arrive
at any reasonable forecast of the impact of the pay revision on the Union Government
or the States. Further, any attempt to fix a number in this regard, within the
ambit of our recommendations, carries the unavoidable risk of raising undue
expectations.
17.27
Our concern is the
likely impact on overall budgetary resources, particularly of the States, once
the recommendations of the Seventh Central Pay Commission are announced and
adopted by the Union Government. All States have asked us to provide a cushion
for the pay revision likely during our award period. The Union Government's memorandum
has built, in its forecast, the implications of a pay increase from 2016-17
onwards. The recommendations of the Seventh Central Pay Commission are likely
to be made only by August 2015, and unlike the previous Finance Commissions, we
would not have the benefit of having any material to base our assessments and
projections and to specifically take the impact into account. We have,
therefore, adopted the principle of overall sustainability based on past
trends, which should realistically capture the overall fiscal needs of the
States.
17.28
In our view, on
matters that impact the finances of both the Union and States, policies ought
to evolve through consultations between the States and the Union. This is
especially relevant in the determination of pay and allowances, where a part of
the government itself, in the form of the employees, is a stakeholder and
influential in policy making. A national view, arrived at through this process,
will open avenues for the Union and States to make collective efforts to raise
the extra resources required by their commitment to a pay revision. More
importantly, it would enable the Union and States to ensure that there is a
viable and justifiable relationship between the demands on fiscal resources on
account of salaries and contributions to output by employees commensurate with
expenditure incurred. In this regard, we reiterate the views of the FC-XI for a
consultative mechanism between the Union and States, through a forum such as
the Inter-State Council, to evolve a national policy for salaries and
emoluments.
17.29
Further,we would like to draw attention to the importance of
increasing the productivity of government employees as a part of improving
outputs, outcomes and overall quality of services relatable to public expenditures.
The Seventh Central Pay Commission, has, inter alia, been tasked with making
recommendations on this aspect. Earlier Pay Commissions had also made several
recommendations to enhance productivity and improve public administration.
Productivity per employee can be raised through the application of technology
in public service delivery and in public assets created. Raising the skills of
employees through training and capacity building also has a positive impact on
productivity. The use of appropriate technology and associated skill
development require incentives for employees to raise their individual
productivities. A Pay Commission's first task, therefore, would be to identify
the right mix of technology and skills for different categories of employees.
The next step would be to design suitable financial incentives linked to
measurable performance. We recommend the linking of pay with productivity, with
240 Fourteenth Finance Commission SERVER 3\E\3374FINANCE (CHAPTER 17) a
simultaneous focus on technology, skills and incentives. Further, we recommend
that Pay Commissions be designated as 'Pay and Productivity Commissions',with a
clear mandate to recommend measures to improve 'productivity of an employee',
in conjunction with pay revisions. We urge that, in future, additional
remuneration be linked to increase in productivity.
Pensions
17.30
Pensions have been
growing steadily, and the liability for pension payments is likely to cast a
very heavy burden on budgets in the coming years. Some of the factors
contributing to this growth are: (i) the rise in pensions recommended by
successive Pay Commissions; (ii) removal of the distinction between people
retiring at different points of time, so that all pensioners are treated alike
in their pension rights; (iii) taking over the liability for pensions of
retired employees of aided institutions and local bodies; and (iv) increasing
longevity. The New Pension Scheme (NPS), a contribution-based scheme introduced
by the Union Government in 2004 for all new recruits after the cut-off date,
has now been adopted by all States, with the exception of West Bengal and
Tripura. This scheme has the merit of transferring future liabilities to the
New Pension Fund and factoring the current liability on a State's contribution
from its current revenues. We urge States which have not adopted the New
Pension Scheme so far to immediately consider doing so for their new recruits
in order to reduce their future burden.
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