The United Progressive Alliance government had announced the Seventh Pay Commission just ahead of the 2014 Lok Sabha elections, hoping to garner support from officialdom. We will soon have to suffer its consequences. The Seventh Pay Commission reported submitted to the government is recommending an across the board pay raise of 16%.

In effect, this will mean a 23.55% raise because while the basic salaries of 47 lakh employees will go up by 16%, the allowances will rise by 63%. This hike is, however, lower than the 35% given by the Sixth Pay Commission. In addition, the pensions of 52 lakh retired bureaucrats will go up 24%. There is also a virtual OROP for civilians too now.

The new total monthly salaries are expected to be in a band of Rs.18,000 to Rs.250,000. In addition, there will be house rent allowance or free housing, dearness allowance, free utilities, full and free healthcare and lifetime pensions. Government jobs are easily the best in the country and entry into the government is like entering a golden world of privilege and lifetime prosperity.

As it is, salaries now exceed the total capital expenditure of the central and state governments. Government has become very expensive, not because of numbers, but because of what it doesn’t do. As much as Rs.30 lakh crore goes uncollected as rightful revenues to the state. Even if half that is collected, India could be transformed with a hugely expanded infrastructure, which would take the economy into a different growth and development orbit.

Steady increase

In the last three years, the Union government's expenditure on salary, allowances and travel has seen a steady rise ‒ from Rs 1.21 lakh crores in 2013-'14 to Rs 1.5 lakh crores in 2014-'15. This is an increase of 14%. For the current year, the salary bill will go up by about 9% to about Rs 1.75 lakh crores.

The government figures that the new recommendations will cost it an additional Rs.1.02 crores each year. But this does not factor the raises the quasi government and state government employees will automatically demand and get. The recommendations will account for another 0.65% of the GDP.

Taken together with the combined wages burden of close to Rs 5 lakh crores for all states, the total wage bill to be impacted by the Seventh Central Pay Commission is estimated at over Rs 6.5 lakh crores ‒ or over 5% of GDP. There is more to government than just this.

The three levels of government together employ about 185 lakh persons. The central government now directly  has 34 lakh people, all the state governments together have another 72.18 lakh employees, quasi-government agencies (including Railways) account for a further 58.14 lakhs, and at the local government level, a tier with the most interface with the common citizens, we have only 20.53 lakhs employees.

Too much government?

A sum of Rs 174,081 crores has been provisioned in the current budget to pay central government employees ‒ about 10.45% of its overall expenditure. The estimated wage bill of government at all tiers is around Rs.10.42 lakh crores or about 10% of the GDP.

Prime Minister Narendra Modi has promised us "less government and more governance". But do we have too much government?

Not really. Consider this: India has 1,622.8 government servants for every 100,000 citizens. In stark contrast, the US has 7,681. The Indian central government, with 3.1 million employees, thus has 257 employees serving every 100,000 people, against the US federal government's 840. Now look at the next tier at the state level. Bihar has just 457.60 per 100,000, Madhya Pradesh 826.47, Uttar Pradesh has 801.67, Orissa 1,191.97 and Chhattisgarh 1,174.62. This is not to suggest there is a causal link between poverty and low levels of public servants: Gujarat has just 826.47 per 100,000 and Punjab 1,263.34.

In vast swathes of territory, the government is barely visible. No sooner you get off the tarmac roads and highways, than all signs of government disappear. Even the government primary schools, when not locked, function mostly to provide midday meals than any worthwhile education. There are very few signs of the police, irrigation, power and public works departments. In most of the adivasi homelands, the only presence of modern India is often the arrack contractor or the forest guard. It is as if a vast stateless nation exists.

Absence of public systems

Even in urban areas, the prime minister’s call for a Swachch Bharat goes unheeded because the systems to collect trash and dispose of them just do not exist. Does anybody wonder why Indians defecate everywhere? It’s such a commonplace sight that it doesn’t even repel us anymore. The prime minister’s call is timely, but to put it into effect we need the public systems that can carry away waste.

This is why the reform of government is critical. The central and state governments must cede most of their authority and powers to a vastly expanded local government tier who will give us better governance and value for money.

Merely heaping bounties on an already lethargic and highly corrupt bureaucracy without altering the terms of employment and restructuring public administration is only to pour more money down the tubes. It makes less government even more expensive.