Balancing wages, winning votes

The BJP-led NDA government gets to constitute the pay commission, and experts will be closely watching how the party reaps electoral and political gains, as the Eighth Central Pay Commission’s recommendations will impact nearly 1.2 crore government employees and pensioners. They form a significant part of the party’s voter base — politically aware, articulate, and therefore influential. It also indirectly impacts a much larger section, as state governments usually adopt the recommendations with some modifications.

Last time, the BJP was believed to have calculated how it would leverage the Seventh Pay Commission’s recommendations in the 2019 general elections. The present pay commission will give its final report by April 2027, and if the government makes the upward revisions in 2028, it would be just in time for the 2029 general elections. Though the Centre had approved its setting up in January, the actual terms of reference were approved nine months later by the Union Cabinet, headed by Prime Minister Narendra Modi.

Politics aside, pay commissions always trigger a periodic debate about overall wage levels and parity between government and private sector salaries. Even after the extremely lucrative old pension scheme was replaced by the National Pension Scheme, government jobs continue to attract large sections of the educated middle class, especially in some northern states. Compared to the private sector, government jobs offer unparalleled job and income security, providing lifetime employment and income that increases steadily with every pay commission.

Moreover, from entry to mid-levels — Group C and Group D — government salaries are higher than what the private sector offers. In government jobs, everyone climbs the career ladder with fixed and predictable incremental gains, unlike in the private sector, where only a few high-performing, ambitious, and meritorious employees rise to the top in a relatively short span of time and rake in the moolah. Often, a large section of private employees in the long run earn or gain less than their government-employed counterparts.

The private sector has been keeping wages artificially low and often not commensurate with profitability, citing a lack of skills or the ubiquitous market forces. A case in point is the salary of freshers joining the flourishing information technology and software services sector, which has stagnated in the Rs 3–4 lakh per annum range for over a decade now. In theory, the pay commission’s recommendations could force corporates to shell out more to their employees. However, given the level of unemployment and the concomitant excess supply of the working population, the private sector manages to keep salaries low across almost every sector.

Compared to developed countries, lower salary and wage levels help India remain competitive in attracting foreign investment and exports. Some experts argue that there is a vested interest in preventing the matching of wages based on purchasing power parity between India and developed Western countries.

For the government, the pay commission’s recommendations need to be tempered by concerns over fiscal deficit and inflation. There has been a clamour against the bloated and “corrupt” bureaucracy, and efforts have been ongoing to downsize the government through the extensive use of contractual workers and by leveraging new digital technologies. In the “Minimum Government and Maximum Governance” model, the emphasis and impact appear to have been more on the former than the latter.