Tuesday, April 8, 2008

Pay panel moots price index for babus

With the focus almost exclusively on new scales and how better off central government employees would be, once the Sixth Pay Commission recommendation is implemented, two controversial recommendations – that seem ill-advised and even uncalled for – have been lost sight of.

One is the suggestion by the panel that a separate price index be considered for government employees to determine dearness allowance (DA).

The second, which may be even more controversial and problematic, is that the present All-India consumer price index (CPI) for industrial workers needs to be rectified in view of what is described as “distortions” contained in it.

This is because housing has a large weight in this index, and therefore, vitiates the DA calculations.

Let us admit one fact. Unlike the earlier pay panel reports, the Sixth Pay Commission has acquitted itself creditably to the task at hand.

Generally speaking, its reasoning is cogent, and its conclusions sound and well-balanced. It had concluded its labours without time and cost escalation -a rarity in these times.

Most important, there is no rumbling of discord over the main thrust of its proposals, so that its acceptance by the government is taken as axiomatic.

It is, therefore, surprising that the Pay Commission wants to explore the feasibility of constructing an index number to cater to central government staff exclusively.

This work should be undertaken by the National Statistical Commission, it says, and to this end, this body should conduct a survey to construct a consumption basket
representing the central bureaucracy, and, thus, pave the way for a distinct price index.

This is easier said than done. While there is scope for refining the existing series of the CPI for industrial workers and even expanding the coverage to more towns and industrial centres – at present, the number stands at 78 - by including more goods and services — how realistic it is to have an index number for government staff alone? And that too for Union government staff exclusively.

At the state level, too, there is a sizeable number of personnel employed. If we adopt the commission’s analogy, we must also have a separate index for each state.

Moreover, even at the central government level, while New Delhi may boast of the largest concentration, its offices are scattered over the length and breadth of the country.

For persons working away from the capital, what should be the relevant index - the one compiled for central government employees alone or the one that is applicable for the place of posting?

Similarly, for Railways and defence personnel, who are stationed all over India, what would be the appropriate index for working out the DA when the cost of their consumption basket is linked to the price movements in the local market of their posting?

Finally, central government employees are not a class apart. They are a part of the mainstream of the population divided into various income groupings. As such, once they are out of the workplace, they live and interact in a milieu which they share with millions throughout the land, with broadly the same shared level of incomes, traits and experiences.

Therefore, an index number, such as the CPI for working class, can reasonably foot the bill.

This index may be imperfect as it is an average of such indices for a large number of centres, but still it is a closer approximation to reality.

Of course, it, too, needs to be revised and recast periodically to better capture the changing consumption trends, and if a chain-based index can be worked out, so much the better.

It is rather strange that such a proposal has been made at all in the Pay Panel report. As it has itself pointed out, the Fifth Pay Commission report dwelt on this issue of a separate index for each category of government employees and found it devoid of merit.
Apart from generating needless suspicions among various classes, it said that such a scheme was impractical.

The Sixth Pay Commission has also erred when it wants the government to rectify what it calls the noticed distortions in the present CPI for the working class.

It observed that the “escalation in rentals for industrial workers should not be so steep for various reasons”.

Is this observation sound when house rents are high and climbing? How can a current series of index numbers be recast in this fashion without losing its comparability over time? Further, the CPI is used not only by the government but by various non-governmental establishments to determine the DA payable to their employees.

Is such a piecemeal restructuring of the index be valid, or required or even possible? It may be added that the present series with base 2001 began to be compiled only from January 2006 and the weightage to housing was based on the Report of the Working Class Family and Expenditure Survey, 1999-2000.

In view of the current trend in the cost of housing and house rentals, should a revised consumer index be worked out, the probability is that the weight assigned to housing would go up!

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