This month, Henry Kissinger wrote, “Nations cohere and flourish on the belief that their institutions can foresee calamity, arrest its impact and restore stability,” That belief has more than wavered in the last few weeks. Till a few years ago, everything looked conducive to a strong performance but today the state of the Indian economy has become more precarious and a recovery more uncertain.
The COVID-19 crisis has precipitated into an unprecedented socio-economic calamity on the ground. Designing an adequate response has become increasingly complicated and policy intricacies and decisions made in the next few weeks will have a profound impact on the future. Notwithstanding the enduring bonanza of low crude prices, India is desperately trying to sell family silver to overcome the revenue collection shortfall & sadly seeking foreign institution loans to keep its head above the water line. Understandably, borrowing money and giving tax cuts are easy, while spending cuts are hardest.
Over the years, populist governments in the centre and in the states giving handouts, are now collectively reeling in debt of over Rs.170 Lakh crores. 60% of this debt has been taken in the last 6 years, amounting to over 1 Lakh crore new debt per month. Presently, government debt works out to over Rs.1.20 Lakh per person in India and this is the inheritance we don’t intent to leave for those yet to be born. Across the rural outback feeling as outcasts, people will begin to seek answers and it will develop its own momentum for the first time. The problem runs far deeper than just blame.
The question is not only how much money RBI can print, but also rather than borrowing indiscriminately, how to save & optimally utilize the available scarce resources. Definitely, an economic impetus will be required for the recovery, so it is time to resolutely rethink issues, until now, too sacrosanct to be contemplated even; about 2 crore state and central government employees covered by pay commission guidelines forming only 1.40% of India’s population are paid Rs. 12 Lakh crores annually. Across India, there is no authentic data on number of government employees, government-controlled institutions & their debt, to the extent that actual employee expenditure could be 50% higher. This is not a simple case of governance failure but is cleverly crafted to keep the subject under the public radar.
If there ever was a time, it is now; the time to cut the Gordian Knot to rationalize pay structures. It is within the remit of the government to evoke the constitutional provisions of article 360 to declare a financial emergency. I have absolute faith that in the national interest, if asked, for the next 3 years; Class A & B employees will evolve a consensus for a deduction of 25% in their salaries while class ‘C’ & ‘D’ employees who earn more than Rs.30,000 per month will willingly offer a deduction of 10% in their salaries. As with the many precedents, the deducted amount can be converted into interest free bonds redeemable after 5 years. Deductions should applicable for all those whose salary is based on Pay Commission recommendations and the & 7th recommendations be reversed where ever accepted. All pensioners receiving pension of over 30,000 per month too should get a deduction of 25%.
Other than salaries, government employees also receive allowances & perks, which constitute over 20% the government expenditure on employees. Government can take que from the early 1990’s, when India faced a somewhat similar economic crisis, the National Development Council’s Committee on Austerity recommended for freezing of dearness allowance, leave travel allowance, bonus, encashment of earned leave etc. In addition to restricting allowances and perks by 25%, retirement age of government employees should be reduced to 57 years and no more than 1% be allowed to be retained beyond that.
Exceptional circumstances require sacrifices beginning at the top. Elected representatives (MLA, MP etc.) get pension for each time they are elected to the office. It is time to reduce the outgo on their pensions and limit their pension to one term only. Also, those holding the reins of the government must set aside their pride and reverse the ill-conceived corporate tax cuts and stall expenditure on statues, memorials, bullet trains etc. such steps will release over Rs. 4 Lakh crores annually to revive the economy.
The establishment must not deflect the issue by mere tinkering of allowances, but now collectively share the pain for the economic recovery with rest of 136 crore, after all they festered the wound in the first place.
India’s economic recovery won’t be easy, there is another fundamental flaw in the process. When the first economic package was announced without consultation with those for whom it was intended; the poorest section of society, it came in for criticism. Now that new announcements are due for corporate bailouts, the government is rightly talking to the business leaders. Over the years, this bigoted attitude of only deliberating with more affluent sections of society is what got India into a grand mess in the first place.