Monday, March 31, 2008

Pay panel, an attempt to destabilise India

An excellent article...

Pay panel, an attempt to destabilise India :

Reproduced from as it is I hope that the reference to the original article is credit enough to the author, none of the following is my work in any way, whole credit goes to the original author and

March 31, 2008

'Till 1947, we were ruled by the aliens. Since 1947 we are ruled by the alienated.' -- Arun Shourie

The 6th Pay Commission report was submitted to the government on March 24. It has once again brought the issue of a grand design to keep India poor by subsequent governments back to the fore.

The issue does not merely concern the finances of the government, as it is being argued in many quarters. In fact, it is much more than that.

To explain what is stated above let me at the outset seek the indulgence of the reader to some personal experiences.

My father was posted in the mid-seventies in interior West Bengal. Accompanying my father to the local market, I distinctly recall that rice then would cost approximately two-and-a-half rupees a kilo. The same quality of rice today costs approximately Rs 20. That implies an eight-fold increase in three decades.

Our family got our first colour television in the mid-eighties for Rs 10,000. That was replaced in mid-nineties by another one at virtually the same price. This in turn was replaced this year at approximately the same.

The point I am trying to make is that the prices of manufacturing items have been falling steadily in the last two decades.

I am sure that readers would recall that the prices of cars, refrigerators, computers or for that matter any other consumer durable item have either been stagnant or have registered a fall. This is due to the opening of the Indian economy, arrival of newer manufacturing technologies and, of course, the need to be cost conscious and competitive in a globalised world.

No wonder, when compared with the manufacturing sector, the prices of farm products have risen consistently. And this particular piece of statistics is often held against our farmers to tell them that their farm produce is more than adequately remunerated by our governments.

But what is the truth of the matter?

To understand the bluff of the government, one must compare the price of rice with something more stable, reliable and more comparable -- like, say gold. Elders in my family tell me that that the value of one quintal of rice in mid-sixties was equivalent to one sovereign (8 grams) of gold.

Today the price of gold is highly skewed for various reasons. To that extent it may distort comparison. So let me take the price of gold in 2006 and compare its price with that of rice. Experts point out that one sovereign of gold was six times the value of a quintal of rice in 2006.

Crucially, the salaries of government officials have gone up about 12 to 16 times in the same period. The impact of this increase on the Indian economy has never been the part of any substantive debate.

This fall in the value of rice to a sixth when compared to gold and one-twelfth when compared to the salary of a government officer in this period is central to the issue at hand.

Naturally, all these have their side effects. In most states, farmers complain that today they do not get farm workers as most of them have migrated to cities to seek some employment.

But the worst is yet to come. Farmers complain that today they are unable to get brides for their sons. Young girls do not want to marry farmers and face the prospect of penury.

It is natural for farmers to want their sons to be educated and then migrate to cities. In effect, education is a means in India to get away from the farm sector -- not get into it. And this proposed hike in the pay of the government officials would only act as an incentive to the farmers to become employees in government offices.

In the process it would convert employers into mere employees. But crucially, who would man our farms? What would happen to our food security? Who would produce food for the nation of a billion plus?

All these problems stated above repeatedly point out to the de-legitimisation of the entire farm sector in India in the past four decades. And as explained above this is not an issue that concerns the economics of the farm sector or the finances of the government. Rather this is a socio-economic-employment problem.

What is farcical to note here is that governments have put in place an elaborate charade of subsidies, successive loan waivers and grand promises to the farm sector. And on a superficial examination of the issues at hand the media, analysts and economists have been pointing out to the fact that we are excessively subsidising our farmers, without fully understanding the crux of the issue -- farming is a losing economic proposition in India.

And our meagre subsidies (including free colour TVs [Get Quote] and the Rs 60,000-crore loan waiver) keep farmers in a subsistence mode -- neither can they quit nor can they continue farming. And that is the tragedy of the farm sector in India.

And this pay panel is part of this grand design

Ever since India as an economic entity was designed, our polity has been under a belief that India cannot be a viable, vibrant and prosperous nation for her entire population. It would seem that we had come to the conclusion that India had to be built for a small set of elite, with the rest kept in mere survival mode.

In fact, this is the extension of the idea of the British who thought that the nation had to be kept poor for the British Raj to be economically viable. The Pay Commission falls in this genre -- keep rural India poor to sustain the India of the elite.

Readers may note that the net impact of the Pay Commission recommendations for a full financial year is approximately Rs 8,000 crore (Rs 80 billion). This is not a paltry sum as it seems.

In contrast to the 4.5 million beneficiaries, this amount is equivalent to the amount budgeted for the mid day meal scheme for 140 million students all across India for the entire academic year of 2008-09. 140 millions students versus 4.5 million government employees! And that puts things in the correct perspective.

But if experts are to be believed, the net impact on the economy would be anywhere between Rs 60,000 croe and Rs 100,000 crore (Rs 600 billion and Rs 1,000 billion) because the increase in the net pay for our central government officials would translate into a concomitant increase in the wages for state government, PSU sector, teachers, banks and other related sectors.

The net beneficiaries would be a mere 2 percent of the population while the rest have to foot the bill.

What has the relevance of the combined failure of the farm sector got to do with this 6th Pay Commission? That requires explaining the other part of the grand design.

Obviously, all this increase in pay artificially distorts the availability of talent. The low earning potential in the farm sector when compared to that of artificially high earnings of a government officer significantly influences the flow of talent from the villages to the cities, from the farm sector to the others.

In effect, that is a subsidy by the farm sector not to it. And that is the complete grand design for you -- our farm sector has to be made uneconomical and unviable to make India politically unstable.

A case for decrease not increase

Remember the oft quoted cliche -- our IAS officers are the best. And the logic of recommending this pay hike has been by pointing out to the fact that in comparison the pay packet in the private sector is significantly higher.

If that were the case why are there no largescale migrations from the government to the private sector? The answer to that is simple -- power and pelf available to our government officers are a huge incentive to remain in the government. Yet, we seek to provide them higher salaries.

Naturally all these have turned India into a country of shortages, especially on the rural side. A country with a substantial section of her population caged, hungry and in abject poverty cannot be fancied to become an economic superpower. Yet this is what we believe little realising that we are sitting on a time-bomb that is waiting to explode.

In short, a farmer's son can become a chartered accountant or for that matter a government officer, but why is it that a chartered accountant's son or a government officer's never becomes a farmer? The answer to this question is crucial. And we, being a democracy, cannot force our people to work in farms. Needless to emphasise, the only solution is to make our farms economically viable, implicitly and explicitly.

And that means that the government needs to reverse it policy of creating India for the elite. Ideally, the government needs to lower pay packets for her employees while simultaneously looking at appropriate policies to make the farm sector economically viable.

And that would at once explicitly and implicitly make farming economically viable. That would also address the issue of urban-rural disparity, which is fast challenging the very political viability of the country.

But by suggesting a substantial hike for government employees, the 6th Pay Commission, like many before it, has indeed been an honest attempt at destabilising the nation. And for that reason the nation need to consign it to the dustbin.

The author is a Chennai-based chartered accountant. He can be contacted at