As poll season approaches, govt employees put fiscal prudence to the sword

Due to the sheer size of the workforce, govt employees often go on strike, especially in election season, to have their demands met

Power sector government employees were on strike in Maharashtra almost before the New Year calls were over. These employees of the government-run Maharashtra State Electricity Distribution Company (MSEDC) opposed giving a license for electricity distribution business in a segment of Mumbai city to a private company of the Adani group. Their fear was that competition in the business might give the government ideas.

In Madhya Pradesh, contract workers in the health sector have also gone on strike. Through their slogans, they have warned the state government that it will be out of power if their demands are not met.

Then, there is the demand for reinstatement of the old pension scheme (OPS) for government employees. In Karnataka, the opposition Congress party in December came out in support of the demand by a segment of government employees demanding the revival of the unfunded scheme.

With nine state elections, including Madhya Pradesh, between now and the general elections of 2024, conditions are ripe for government employees to have their demands met in this one-and-a-half-year period. And taking the cue, employees of organisations like government-owned banks have announced their strike plans demanding a five-day working shift every week instead of the current alternate pattern.

Earlier, in the run-up to the 2014 elections, the men in uniform went on strike demanding One Rank One Pension (OROP). Fulfilling the demand became a successful poll promise of the BJP party.

In the run-up to the general elections of 2019, the Centre was a bit more parsimonious. Possibly because of the impact of demonetisation and the effect of the goods and services tax (GST) on public finance. Still, the employees, including casual labourers, got non-productivity-linked bonus equivalent to their one-month pay. The term simply means a bonus just for being in the service of the state. By May 2022, the influential cadre of the Central Secretariat Service has wangled a promotion for 8,000 at one go.

The states were more cavalier. In the run-up to the last state elections in 2017, the Congress in Madhya Pradesh announced a stipend for new recruits, over and above their salary. It paid political dividends for the short-lived government. In Punjab last year, the state government made all contract employees permanent. This was despite being so financially strapped. In September last year, the salary of the employees got delayed.

Down south in Tamil Nadu, Chief Minister M K Stalin was upfront in crediting the ruling DMK's victory in the state elections, in September 2022, to the role of government employees, including teachers. Besides the old pension scheme, Stalin reinstated the leave benefits for these employees, and more significantly, disciplinary cases against them for agitation were rolled back.

The lesson is not lost on other states. Since each state is keen to offer more government jobs, the existing employees find this is the right time to demand more benefits.

For the Congress party this time, meeting the demand for the revival of the old pension scheme by government employees is an opportunity to win an electoral payback.  

Cost of an employee

OROP has seriously harmed the defence budget. About 54 per cent of the total each year goes for allocation to wages and pension. The government estimates that the annual outgo for OROP is Rs 7,123.38 crore, which is nearly half the sum the government spends on research and development for defence. The renewed assorted demands for higher pay could again hurt the general government budget big time.

Not just OPS, the demand for announcing the Eighth Pay Commission is just around the corner. The commission is a usual bonanza the governments at the Centre have offered to their employees at an interval of ten years. The benefits are for both employees who are serving and those who have retired. There are discussions on the demand already in employee forums.

The Seventh Pay Commission award became applicable from 2015. So the time to announce the next commission is drawing closer. The commission usually takes about two years to firm up its award. If the government delays announcing it, the financial risk does not disappear. The employees force the government to stick to the ten-year pattern, which means they get arrears if the award is delayed. The arrear for the last commission was a massive Rs 1.02 trillion, according to a PIB statement.

Pensions, wages, and salaries account for 16 per cent of the aggregate government budget at the Centre (see table). As a percentage of non-capital expenditure, it is just next to the payment of interest as a liability for the government. The numbers are even worse in the states. According to RBI data on state finances, of the total expenditure of all states, pensions ate up 11 per cent in FY20, the last pre-Covid year. Of the total non-development expenditure, it is more than a third at 35 per cent, eclipsing even interest payments on loans the states take on.

 

 

Many states have tried to get around the problem by hiring contract workers. But as the agitation in Madhya Pradesh shows, the reprieve is only temporary. These employees are demanding to be converted to permanent ones.

Only in the past few years have the capital expenditure (capex) of the states and the Centre begun to improve. The rate of government money for capex, which was 2 per cent of GDP in FY11, fell away over the past decade close to 1.5 per cent by FY18. Only recently, the Centre has pulled up its fiscal shoestrings to reach 2.9 per cent of the GDP by FY23. If the trend continues for FY24, that would mean an 11 per cent growth rate, year-on-year.

In FY23, the Centre had to stretch the fiscal purse to accommodate a Rs 1.1 trillion fertiliser subsidy and another Rs 30,000 crore cooking gas subsidy. It has also not allowed the price of petrol and diesel to change at the retail level for more than two years. The state-owned oil marketing companies had to cut their dividend to the government to pay for the loss from those unchanged prices. It reduces government earnings from non-tax sources. These challenges will only get stiffer.

Santanu Sengupta, the lead author of a Goldman Sachs report on India's public finance, notes, "India already has one of the highest public debt-to-GDP ratio in the world, and a rise in the general government deficit can reverse the gains made…."

For both layers of the government, the costs are high in other ways too. At the executive level, the ranks of both are thoroughly understaffed. "The strength of CSS (Directors, Under Secretaries, Section Officers, Assistants), CSSS (PPS, PS, Stenographers), CSCS (LDC and UDC) in September 2015 was just 23,860 (Seventh Pay Commission data). Added to it would be about 1,500 officers in the posts of Secretaries, Additional Secretaries, Joint Secretaries, Directors and Deputy Secretaries in the ministries under what is known as the Central Staffing Scheme"—seventh Pay Commission. In other words, these are the total government employees who write policies. Even adding those in the allied offices of the Centre like those in tax, audit and accounts departments, the ranks of executives is just a shade short of 125,000 people.

But the published number of central government employees is 1.4 million leaving out railways and the postal staff. Adding those in permanent jobs in the state of about six million, one gets a number close to eight million, a tidy number. It means more than 80 per cent of government employees are just carrying files or running errands. There has been no work study of their role for decades. The Karmayogi scheme, approved by the Union Cabinet in 2020, meant to undertake this exercise, is yet to get on with it.

The cost of maintaining this massive pool of almost unproductive employees cuts into what the rest of the economy gets. This year, to ensure that the money earned by them from the government do not cut into other necessary expenditure, the finance ministry has issued instructions that no employee will get interest on their contribution to the General Provident Fund (GPF) of more than Rs 5 lakh in a year.

Every government employee is entitled to put away a sum from their salary towards their GPF as an old-age security net. This is different from their pension schemes. A huge percentage of employees at the Centre and the states used this GPF as their merry savings scheme since the interest it paid has always been more than what the public can make from the Public Provident Fund. An internal estimate shows about 20 per cent of government employees do such padding up.

It is, therefore, ironic that at the beginning of this year, the interest rates on small savings schemes run by the government for the general public were barely raised despite those being inflation-linked. The rates for the most popular Public Provident Fund were not touched.

To end the story, have you heard of a story of something called a canteen allowance? It has nothing to do with the army but the allowance that the workers in the canteen draw. They, too, are deemed government employees. The canteen allowance is revised just as the rate of dearness allowance linked to inflation is revised for other employees. This is something that the hard-working two million-odd ASHA workers on the ground, providing health services in far-flung villages and small towns, are demanding and having a hard time obtaining. The canteen workers, it seems, are of more significance.