On September 15, 2001, the Prime Minister addressed the nation over Doordarshan and spoke about the inevitability of taking hard decisions on the economy. Three days later, his Government sanctioned a Rs 800 crore bonanza for Central government employees by way of a da increase. On February 28, 2002, while presenting his fifth budget, the finance minister waxed eloquent on expenditure discipline. Nineteen days later, his Government sanctioned yet another round of da payment to its employees and pensioners. This time the cost to the exchequer was over Rs 1,800 crore.

At a time when the inflation rate has been declining, such largesse is inexplicable. At a time when the Centre’s finances are so badly stretched and half of its revenue receipts go toward interest payments alone, such a bounty is inexcusable. At a time when there is an urgent need to step up growth-stimulating and equity-inducing public investment, particularly in physical and social infrastructure, such a blatantly political move is anti-poor. But who is to protest? Yashwant Sinha blames his predecessor for destabilising public finances by accepting the recommendations of the Fifth Pay Commission. But he forgets that no political party had opposed the recommendations in 1996-97. Yet it was the same Sinha who linked pensions of those retirees prior to January 1, 1986 to the vastly enhanced “revised” pay scales.

DA stands for dearness allowance and is the compensation given to government and public-sector employees for cost-of-living increases. These employees account for around 5 per cent of India’s workforce of over 300 million. But it is their pay, perquisites and privileges that are not only well protected but continually enhanced. da is calculated using the Consumer Price Index for Industrial Workers (cpi-iw) with 1982 as the base. Unlike other price indicators like the Wholesale Price Index, the cpi-iw has not been restructured to keep up with the times as it should because of pressure from government employee unions. Hence it is the only one that reveals increasing inflation in 2001, apart from showing the highest rate of increase in the past decade by a substantial margin.

For the financial year 2002-3, the da bill for the Centre is budgeted at a whopping Rs 12,500 crore, while the salary bill is pegged at around Rs 18,000 crore. Before the Fifth Pay Commission, the rate of neutralisation was 100 per cent for Class III and IV employees, 75 per cent for Class II and 65 per cent for Class I employees. The commission changed this to a uniform 100 per cent for all employees. Even if there was political pressure, the least Sinha could have done was opt for a lower rate of neutralisation keeping in view the benign inflation position.

P. Chidambaram did make one valiant attempt to manage the da burden. But the Law Ministry opined that da could not be tampered with without the consent of employee unions and that the only way to manage the salary bill was by declaring a financial emergency under Article 360 of the Constitution. This provision allows for reduction in salaries and allowances when “a situation has arisen whereby the financial stability or credit of India or any part of the territory thereof is threatened”. Chidambaram did not pursue the matter further. But the Law Ministry may have been a bit too cautious; after all, some states like Maharashtra and Assam have announced a freeze on da. And what about the precedent of July 1974 when, following the first oil price shock of October 1973 and a monsoon failure, the inflation rate in 1973-74 had crossed 20 per cent. Indira Gandhi had turned to the then chief economic adviser in the Finance Ministry for some radical ideas to control the spiralling price rise. This economist came up with bold measures which, among other initiatives, froze wage and salary increases and 50 per cent of the da payments in the organised sector. The inflation rate fell steeply to minus 1 per cent in 1975-76 and 2 per cent the following year. It was this achievement, incidentally, that made Manmohan Singh’s reputation.

There is one view that the salary bill of the Central government is not unsustainable judged from the fact that salaries, allowances and pensions now average about 2.4 per cent of the gdp, no different from the proportion a decade ago. But to argue that the government’s establishment expenditure is not having debilitating consequences is to run away from harsh realities. In Uttar Pradesh and Bengal for instance, the revenue is not enough to pay even the salary of state employees. Automatic indexation, which is what da is all about, is accentuating the fiscal woes of the states. It is high time Delhi practised what it preaches. Otherwise, it will undermine what some reformist chief ministers like Digvijay Singh, A.K. Antony and Tarun Gogoi are trying to do. Actually, truth be told, the situation envisaged by B.R. Ambedkar himself while conceiving and piloting what became Article 360 is already here.

(The author is with the Congress party. These are his personal views)