May 25  , 1998

The Union Government's decision to  give its employees a two-year extension in service pleases the greying staff but perpetuates stagnation.

By Shefali Rekhi

After the bang came the whimper. Last week, a day after the first nuclear blasts at Pokhran, the Union Government smoked the peace pipe with its 48 lakh employees, including defence personnel, who had long since been demanding a higher retirement age, and agreed to raise it from 58 years to 60. And straightaway because of this policy revision, 90,000 men and women in civvies and 50,000 in military uniform will stave off superannuation. Notable among those who can now head back to work instead of the farewell party are about two dozen secretaries to the government, including personnel secretary Arvind Verma (see chart), whose department authored the move.

On the face of it, there is nothing wrong with the decision to raise the retirement age of government employees when the average life expectancy, which was 50 years in the early '70s, has crossed 62 now. Government employees' retirement age all across the western hemisphere now ranges between 62 and 65 years. However, the decision, in the case of the cash-strapped Union Government, comes as a breather. If the 1.4 lakh employees were to be retired this year instead of their getting a reprieve, they would have cost the exchequer Rs 5,200 crore in upfront payments (gratuity and other benefits) and the part of the pension dues that can be commuted at one go. On the other hand, the additional hospitality accorded to the 58-plus employees will cost the government only Rs 1,493 crore. Net savings: Rs 3,707 crore. It comes at a time when the government is beset with an employees' wage bill that has stretched by Rs 18,000 crore following the recommendations of the Fifth Pay Commission, implemented by the erstwhile United Front government.

While the move is useful as a fire-fighting operation, its long-term efficacy is being questioned by economists and policy-planners, who think that the two extra years given to existing government employees will shrink job opportunities for the young people whose share in the Indian population is -- unlike in the West -- still growing. Besides, the extra wage bill for employees in the 58-60 age-bracket will be disproportionately high as older people draw fatter paychecks than their younger colleagues. Says Tapas Sen, economist with the National Institute of Public Finance and Policy (NIPFP): "It is a step in the wrong direction. It comes at a time when the country urgently needs to step up spending on development."

There are productivity implications as well. The decision means that this year there will be 1.4 lakh extra officials to frame policy, service industry needs and guard the country's frontiers. It is a 2.9 per cent increase in the number over last year. In sharp contrast, the Fifth Pay Commission had recommended that the numbers should be cut by 3 per cent every year to reduce overall size by 30 per cent in a decade. Says Suresh Tendulkar, economist and member of the Fifth Pay Commission: "The government is grossly overcrowded and this will have serious long-term implications. In any case, the mindset of the bureaucracy towards reforms has not changed. This will mean more delays, more obstructions. I was opposed to any such thing from the beginning." Tendulkar's opposition found place only in a dissent note to the commission's recommendations, which included a hike in retirement age to 60.

To be fair, the Union Cabinet did try to balance the retirement age increase by raising the maximum age for entry into government services by two years. But it had to be put off this year because of the various entrance examinations underway. At any rate, an increase in the maximum entry age does not solve the moot problem of an over-populated government. Only a rise in the minimum age for eligibility can do that, but it is doubtful if the increasing populist pressure on the government will allow the threshold to be raised.

However, it will be difficult for the Union Government to contain the spillover effect of the decision. Every time the Centre announces a hike or a concession on pay packages, both public-sector units and state governments follow suit. It will be no different this time. And that will compound the woes of states such as Bihar, which still have to concede to the state employees' demand for a pay hike equivalent to that of Central government employees. Public-sector companies too are beginning to feel the heat. Mahanagar Telephone Nigam Ltd chairman S. Rajagopalan says that with this decision, he will have to completely revamp the Voluntary Retirement Schemes (VRs) on offer. "Now with 24 extra months on their side, who will want to go?" Rajagopalan estimates that he might end up spending in excess of Rs 100 crore on this account over the next few years on 2,000-odd people.

Even the private-sector companies are worried that trade unions will mount pressure for a similar hike in retirement age. Says Ravi K. Sinha, managing director, SRF Ltd: "Global competitiveness and productivity are not matters of choice anymore, it's a question of survival. The extension of retirement age will come in the way of this critical goal."

The government perhaps has other reasoning. The last time retirement age was increased was in December 1962 when, following the Chinese aggression, Jawaharlal Nehru found there were not enough personnel to run the ordnance factories. He issued a three-line diktat raising the retirement age from 55 to 58 and recalled those who had gone on leave in preparation for retirement. This time round, the government was pitted against greying babus, not an invading army.

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