Saturday, January 10, 2009

On Government Salaries & Services


Let us begin with three observations regarding  government employees.


It is clear that the salaries received by government employees  in spite of the pay increases specified in the sixth pay commission have  not kept track with the salary increases in the  private sector.  In fact, salary discrepancies have reached dangerous proportions with serious impact on corruption and stability of the social and moral fabric of the nation.


On the other hand  a significant portion of government expenditure is spent on salaries of government of government employees.  It  is estimated  that  the  recommendations  of the sixth pay commission alone will cause a 0.5% impact on the GDP of the nation.  [Need  to  find  a  good  number  as  to  the  percentage of  Central/State Budget  spent  on  employee  salaries].  This  number  is  sure  to  go up  with continued  pressure from every interest  group  which  feels  shortchanged.  The  trend of salaries taking up  ever larger percentages of total expenditure is a recipe for fiscal disaster.


A third observation,  is  that most of us are frustrated with the corruption,  slow pace  and lack of flexibility exhibited in our interactions with government employees for the simplest of tasks.   Most of us would not tolerate such service in the private sector,  but  when it comes to government we use a combination of  bribes,  influence  and  complaining acceptance  to deal with the situation.


Is  there a common sense way to solve these three issues with a single stroke,  i.e.  increase the compensation the government employees can earn,  reduce the impact on the government expenditure and improve the quality of government services received by the common man.  The answer is,  yes.


If every government employee was able to earn up to four times their gross salary by providing "value added services" to the public then we could increase the potential compensation of every government employee by four times.  These services could include anything  that  they could "legitimately" provide to the public.   This will have an impact  on both  "dishonest"  and  "honest" government  employees who would see a legitimate way to augment their income.  For  simple  straightforward  services  one  could create an efficient online market  where there could actually be bidding for the lowest quote  to  allow  market  forces  to  rationalize  the  amount  required  for  a  particular service. 


In addition,  if  the government employee  had  to  pay  a  12.5%  service  tax  on  this  compensation  then  the  government  expenditure  on  these employees  would actually go down by  50%.   The transparency of the system  could  also be  ensure  by requiring  any  service  for which the  charge   was  more  than  a  threshold  amount  (say  Rs. 10,000) needed  to  be  available  online  on  the  public  record.


This system will not eliminate corruption  (especially  large  scale  corruption)  but  it  will provide  a  serious  disincentive for small scale  corruption  and  improve the  user experience  of  the  private  citizen  with  government, while  improving  compensation of  government  employees and reducing  government  expenditure.













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