Given the huge impact of the Pay Commission—central fiscal deficit jumped from 2.5% in FY08 to 6% in FY09 and 6.5% in FY10, thanks to huge arrears—it is not surprising that state governments have told the Centre it needs to help share their burden as, within months of the Central Pay Commission, states are under pressure to implement a version of this. While many have asked for the Pay Commission impact to be made part of the terms of reference of the Finance Commission, UP has asked for half the burden to be shared by the Centre, West Bengal has asked for 100% financial assistance and Gujarat has talked of the distortion this causes in the private sector—it has asked for the pay structure to be aligned with productivity and performance criterion. Theoretically, this is something each pay commission does anyway, but the reality is that, at the end of the day, the government pays too much at the lower levels—where it has way too many staffers—and not enough at the higher levels. It is to be hoped that, this time around, the Pay Commission will use the opportunity to radically restructure the bureaucracy. And if benchmarking is done with private sector salaries, this needs to be done accurately. In the case of the clerical staff, this would likely mean a lowering of salaries; at the higher level, costs of perquisites like housing need to be factored in, as do pensions and security of tenure—never present in private jobs.
The Pay Commission needs to consider two other big points. First, is security of tenure hurting performance—it would be a good idea to look at the practice in other countries, especially those that have very responsive bureaucracies. Second, if certain performance criterion are agreed upon, why should the exercise be a decadal one—why not let the personnel ministry evaluate performance as is done in the private sector every year? The current system just rewards mediocrity and file-pushing—how successful this has been is best judged by the relatively slow progress India has made versus others in its peer group, like China.