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.