Pay for India

If the prime minister announces on Independence Day that the Sixth Pay Commission’s restructuring of the salaries of government employees has been accepted by the cabinet, as many expect he will, it will hopefully be not the end of a debate, but the beginning. This opportunity should be used to not merely tweak the monthly compensation of government servants in such a way that no single set of them is particularly dissatisfied; it should be used to build consensus for an overdue restructuring of their terms of employment.

It is easy to mock India’s bureaucracy as bloated and inefficient, and so everyone often does. The truth, however, is that there is little incentive for them to be more efficient. Indeed, what is puzzling is that the universally held intuition that a better service does not come with low wages somehow ceases to apply when the public sector is being discussed. However, several studies have demonstrated that higher pay alone is insufficient to make that change: an increase in pay needs to be embedded in a structure that causes a paradigm shift in government employees’ attitude to their work.

The Indian government’s traditional argument that performance-related incentives are embedded in its system of promotions and transfers can hardly be considered more than a polite fiction, a fig leaf to cover the embarrassing fact that our higher civil servants face incentives that are frequently non-existent and sometimes perverse. As is well known, the last pay commission’s recommendations were only partially implemented: this time, IIM-Ahmedabad has produced a report that provides detailed suggestions for incentivising government employees across departments. Its recommendations should be made compulsory for ministries, not optional, and each scale of employee should be paid close to a private sector equivalent in order to avoid losing the most effective. The cabinet would do well to seize a moment that comes but once a decade, and go some way towards solving the crisis of Indian governance — a problem that, as Lant Pritchett of Harvard says, is “one of the world’s top ten biggest problems”.