It is just as well that finance minister Arun Jaitley was away in Turkey rapping with the G20 about “India’s strong fiscal fundamentals”, even as a small part of that fiscal stability was compromised, with nothing much gained, except, possibly, the 20 million votes that the armed forces represent.
The approval of “One-Rank-One-Pension” is a bad decision. This is not to say that faujis don’t deserve a better deal. They do — particularly the officers. But succumbing to the OROP demand meant compromising on a sound principle. “Rank” — a level of command responsibility entrusted to a soldier — should only have historical and ceremonial value post-retirement. Associating pay, or even worse, pension, with rank is indefensible.
Consider the perverse incentives rank-based pay generates. First is the “toe in” incentive to just cross the rank hurdle and be equated thereafter for life. Not very inspiring. Second, rank as a basis for pay is a huge disincentive for specialists — high-quality surgeons, engineers, pilots, staff on nuclear subs, missile technologists and communication specialists. They may not have, or may not want, the “command profile” that comes with a high rank. Civilians call this being good at babugiri or administering power.
Two options exist — though both are bad ones — for getting around this conundrum. One, proliferate “ranks”, as is done in civil service to create a top heavy architecture, but accommodate time-scale promotions. Second, compensate specialists by adding-on allowances. But this still does not protect their pensions. Therein lies the potential for a second bad decision.
The third bad decision would be to extend the OROP principle to the paramilitary forces (PMF). Unlike the armed forces, senior PMF officers do not suffer the disabilities of their men, who live in much worse conditions than do the jawans of the Army. The “in and out” rotation of officers from the Indian Police Service and the lack of regimental tradition binding officers to their men are other differences. Most tellingly, the “khaki” these forces wear is stained by the disrepute that the civilian police has brought to that glorious colour.
Happily, the term of the Seventh Pay Commission has also been extended up to December 2015, because it has much to mull over in the context of OROP. Here are five suggestions. First, OROP will cost between: Rs 10,000 crore to Rs 20,000 crore annually. This is not a killer. The money can be found over time. Fast forwarding disinvestment, including in the defence departmental undertakings, is an option. But it is a bad principle to sell the “crown jewels” just to service pensions.
The pay commission should find the money by cutting back on the pay increase it might otherwise have given to faujis. The OROP demand was for inter-generational equity between those recently retired and the more aged veterans. It is only fair that what fauji pensioners gain should be paid for by faujis in harness today by foregoing any anticipated increase in pay.
Second, assess the extent to which OROP corrects the post-1973 skew against the armed forces. Compare the pay and pension earned over an average life cycle of a fauji and a civilian, taking into account the shorter tenures and the fewer promotion opportunities of the former. If the skew persists, rather than an “edge” that the armed forces should enjoy, this is the time to correct it.
Third, move explicitly towards fiscal sustainability. Since 2004, the government’s liability on pension stands capped at its “defined contribution” for new civilian employees. But the liability remains open-ended with respect to the armed forces who enjoy an assured level of pension. Is this the “edge” they should continue to enjoy? Fiscal prudence dictates that a “defined contribution” pension, as for civilians, should be the way to go even in the armed forces.
Fourth, previous pay commissions have refrained from suggesting rationalisation of personnel — officer to jawan ratios; substitution of mobile strike capacity for “stand and hold” physical presence and clearer separation between the tasks performed by the Army and the paramilitary forces. This is where the fat to finance OROP lies. The Army, which constitutes more than 80 per cent of the pay and allowances and 90 per cent of the pensions paid in the armed forces, should specifically be in the cross hairs.
China has just signalled its transition to a modern superpower by cutting 300,000 redundant, possibly “tail” related jobs, in the People’s Liberation Army, whilst simultaneously sharpening its teeth. India needs to do the same. Lastly, there is little justification for an overall increase in government pay in general. It has been 100 per cent indexed to inflation since 1996. In nominal terms, the per capita net national income increased by 124 per cent over 2006-2015, but the distribution of growth is skewed in favour of the top 50 per cent in which government servants fall. The salary including dearness allowance (DA) of government servants increased by 113 per cent.
Government servants may have increased their share of the national income versus the bottom half of India who do not enjoy automatic inflation hedging. But there has been no appreciable change in the quality of services provided by government to citizens over the last decade. Private employment has been hit by the global economic slowdown, jobs are scarce and inflation is a continuing risk.
The bottom line is that the proportion of national income pie available for government salaries must remain capped. The combined share of the public sector (including parastatals) in national employment is barely five per cent. Public sector pay must reflect performance and the market test.
The demand for government jobs is skewed — very high for unskilled, semi-skilled work. But at the other end, the governor of the Reserve Bank of India bemoans that cutting-edge economists are not available for public service. The armed forces face a shortage of officers against sanctioned posts. Doctors, nurses, good teachers, professors, scientists and engineers are similarly scarce. Children of government servants vote with their feet by preferring private sector jobs.
Public sector pay policy must first address the demand-supply gaps, before fiddling with the pay for positions and cadres where there is excess supply. The latter are usually those where job entitlements are significant, but accountability limited. The tail must not wag the dog.
The writer is adviser, Observer Research Foundation
