Common man to tighten his belt

10% hike in DA for Babus!

Indians asked to tighten belts while a whopping ` 174,081 crore is earmarked to pay government employees

Ordinary Indians are being asked to tighten their belts as the economy heads into the dumps, but Bharat Sarkar's waistline continues to bulge.

A whopping Rs 1,74,081 crore has been earmarked to pay the bloated government's lakhs of employees this financial year - about 10.45 per cent of its overall expenditure - even as the Prime Minister attempts to wag his finger at the liquidity-happy developed nations in St Petersburg.

"You can look at the bloated nature of this State through its expenditures," said Surjit S Bhalla, eminent economist and chairman of Oxus Investments. "There is flab everywhere to be cut… and it is only the sheer arrogance of this administration that instead of doing that, they would spend this time adding items to the expenditure bill on the scale of the Food Security law."

Combining pay, allowances and travel expenses for central government and railway employees, the State spent just under Rs 1,00,000 crore in 2011-12, a number that ballooned to ` 1,13,785 crore the following year and has been estimated at Rs 1,24,646 crore.

Ballooning state

With elections on the horizon, the government also seems prepared to add further to this bill by increasing the 'dearness allowance' to a reported 80 per cent from 72 per cent ahead of the festival season, a decision that will benefit 80 lakh employees and pensioners - with a requisite hit on the bottom line.

And although India has only a fifth as many public servants as the United States does, relative to population, the efficiency of even this unwieldy mass has been criticised. A 2006 World Bank report pointed to the ballooning state as one of the reasons corruption spreads and pointed to structural issues with the way India's civil services are organised.

"The civil service is burdening by an expanding salary bill that has crowded out non-salary spending. Short tenures caused by premature transfers of officials responsible for delivering public services have undermined continuity," the report said.

"Capacity gaps exist in some areas - India, for example, has the highest absolute number of maternal deaths in the world, but only three full-time officers at the central level dedicated to the task of supervising maternal health programmes."

This lack of people where they are needed is usually compounded by a surplus of staff in Delhi's air-conditioned ministries and to accompany politicians and high-profile bureaucrats.

A Mail Today report identified politicians with a fleet of 10 cars and over to travel with them wherever they go, contributing to the fuel and salary bill with little in the way of productivity added to the Indian state.

Rather than dealing with this substantial contribution to the fiscal deficit, the current Parliament session saw the government bring in the Food Security law, the Land Acquisition Act; and PM Manmohan Singh is currently berating the developed world for surprising emerging economies as a result of their 'unconventional monetary policies'.

"There is precious little about the great decline in India's growth that has anything to do with the tapering off (of US liquidity)," Bhalla said. "Because the tapering off only came less than 6 months ago, but the great decline has already happened."

Although 'right-sizing' in the current economy could have contractionary effects, the addressing of structural concerns - such as the dearness allowance, currently pegged to the CPI-IW data to adjust for inflation - would improve the government's financial situation. Improved finances and a smaller fiscal deficit are likely to make it cheaper for the government to borrow - a crucial point at a time when yields on 10-year bonds have been appreciating alongside the rupee's drop.

"Why use the CPI (consumer price index)? That automatically imparts a huge bias, we know the weightage system is problematic," said Bhalla.

"One of the first attempts at deficit cutting is that we should now link all these dearness not to CPI but to personal consumption deflaters. That itself, one could calculate, it would remove a fairly large amount off the government's bill. That should be the first order of business."