Link Pay to Productivity - 14th Finance Commission
THE 14th Finance Commission in its recent report states,
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 .
An internal study by the Commission brought out the fact that the Union Government's expenditure on pay and allowances (Excluding productivity linked bonus/ad-hoc bonus, honorarium and encashment of earned leave, and travel allowances.) more than doubled for the period 2007-08 to 2012-13, from Rs. 46,230 crore to Rs. 1,08,071 crore (If salary of defence services is included, the corresponding figures will be Rs. 73,073 crore and Rs.1,84,711crore). 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-in-aid) 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 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.
The Commission expressed its concern on 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.
The Commission drew 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.
The Commission recommended linking of pay with productivity, with a simultaneous focus on technology, skills and incentives . It further recommended 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 . The Commission urged that, in future, additional remuneration be linked to increase in productivity .
Source: Paras 17.23 to 17.29 of the Report of the 14 th Finance Commission