As the Indian economy flounders the bigotry of those who make policy for the affluent only eats into the core of Indian society.
Henry Kissinger wrote, “Nations cohere and flourish on the belief that their institutions can foresee calamity, arrest its impact and restore stability,” sometime this month. That belief has more than wavered in the last few weeks. Till a few years ago, things looked conducive for a strongly performing economy, which has slipped back into a state of precariousness, with no recovery routes in sight.
As COVID-19 precipitates into an unprecedented socio-economic calamity on the ground, designing an adequate response has become increasingly complicated. Policy intricacies and decisions over 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 and is sadly seeking foreign institutional loans to keep its head above the water line. Understandably, borrowing money and giving tax cuts are easy; spending cuts are the hardest.
Over the years, populist governments, doling handouts at both the centre and in the states, are now collectively reeling in debt of over Rs170 lakh crores. Around 60 per cent of this debt has been taken in the last six years, amounting to over 1 lakh crore new debt per month. The government’s debt works out to over Rs 1.20 lakh per person in India. This is the legacy that will be left behind for our unborn generations. Meanwhile, the rural outback feels like outcasts and will demand answers with questions developing their own momentum. It is no longer about laying blame; it is about survival.
The question is not only about how much money the Reserve Bank can print but also how it can save and optimally utilise scarce resources, rather than borrowing indiscriminately. Definitely, an economic impetus will be required for the recovery but it is important to resolutely rethink issues that have been too sacrosanct. There are about 20 million state and central government employees covered by Pay Commission guidelines, who form only 1.40 per cent of India’s population and are paid Rs 12 lakh crores annually. There is no authentic data on the number of government employees, government-controlled institutions and their debt and the actual employee expenditure could be higher by 50 per cent. This is not a simple case of governance failure but is cleverly crafted to keep the subject away from public radar.
If there ever was a time, to cut the Gordian knot to rationalise pay structures, it is now. 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 if asked to go for a 25 per cent a deduction in national interest, for the next three years; Class A & B employees will arrive at a consensus while class ‘C’ & ‘D’ employees, earning more than Rs 30,000 per month, will agree to a 10 per cent deduction. As with the many precedents, the deducted amount can be converted into interest free bonds, redeemable after 5 years. Deductions should be applicable for all those whose salary is based on Pay Commission recommendations. The recommendations of the 7th Pay Commission are to be reversed where ever accepted. All pensioners receiving more than 30,000 per month too should get a deduction of 25 per cent.
Other than salaries, government employees also receive allowances and perks, which constitute over 20 per cent the government expenditure on employees. Government can take cue from the early 1990’s, when India faced a somewhat similar economic crisis, the National Development Council’s Committee on Austerity recommended the freezing of dearness allowance, leave travel allowance, bonus, encashment of earned leave and such others. In addition to restricting allowances and perks by 25 per cent, retirement age of government employees should be reduced to 57 years and no more than one per cent should be allowed to be retained beyond that.
Exceptional circumstances require sacrifices beginning at the top. Elected representatives (MLAs and MPs) 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 or bullet trains. Such steps will release upwards of Rs 4 lakh crores annually to revive the economy. The establishment must not deflect the issue by mere tinkering of allowances but collectively share the pain to ensure economic recovery with the rest of the 1.36 billions, who have been economically wounded.
India’s economic recovery will not be easy because of a 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 a lot of 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.