Thedebate over freezing of dearness allowance for central government employees during the coronavirus crisis is shadow boxing over a much bigger issue that we must confront sooner than later: is privileged India willing to shed and share some of its fortune at the time of this unprecedented economic crisis? The way we tackle this small issue will set the tone for how some of the bigger issues of distribution are going to be handled in the coming weeks and months.
The facts are simple and not under dispute. The Narendra Modi government has taken the unusual decision to withhold the current and the next two instalments of the inflation-linked dearness allowance [DA] of all its employees and pensioners. Till July 2021, the DA will stay at 17 per cent. The government will not pay the already announced 4 per cent DA hike payable from 1 January 2020 and similar raise due from 1 July this year and 1 January next year. On an average, about 48 lakh employees and 65 lakh pensioners stand to lose about 6 per cent of their take-home salary over this period of a year and half.
There is no dispute that this would save substantial money for the government. The Modi government estimates that it will save Rs 37,530 crore. If the state governments follow suit, as they usually do, their combined saving would be to the tune of Rs 82,566 crore. Put together, the central and the state governments could save about Rs 1.2 lakh crore. If this amount is spent on health, it would raise the total public expenditure on health, central and state governments included, by nearly 50 per cent.
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Mistaken opposition
What, then, is the dispute? Ask that question to the Congress party that predictably chose a wrong issue to throw all its might in opposing this freeze. Rahul Gandhi wrote a tweet and Manmohan Singh spoke out against this. Priyanka Gandhi and P. Chidambaram also called out move, while Sonia Gandhi wrote to PM Modi to protect MSME workers and their salaries.
To be sure, the Congress made a valid point. It is odd that a government that is yet to put on hold the Tuglaq-style Central vista project or the bullet train project chooses to begin its economy measures with its employees. But then it went on to offer multiple arguments to oppose the freeze: moral argument of hardship for worse-off employees, emotional argument of its effect on frontline workers battling with coronavirus and the economic argument of its consequences on recovery from lockdown. Sadly, even the otherwise reticent and careful Dr Manmohan Singh, lent his authority to this cause.
The emotional argument is a red herring. Yes, the public sector health workers and police force need and deserve support from the country. But no, the presence or absence of an additional instalment of DA is not going to make a difference to them. If the idea is to incentivise them, the government could announce a special bonus for frontline health and sanitation workers, as Haryana government has. Clerks and teachers cannot hide behind this alibi.
The economic argument is factually wrong. The claim is that putting the money in the pocket of this ‘middle class’ is necessary for re-igniting the economic engine, for they would lead the revival of demand. Sure, government employees are more likely to spend what they earn than, say, a business tycoon. But rural poor have the highest propensity to consume. So, the surest way to kick-start demand is to pour money into rural India.
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Economic hardships?
The argument about hardship needs to be placed against the ground realities in India. True, salary cut is not welcome. [Full disclosure: My own family would be adversely affected by this decision]. A sudden announcement like this one entails the pain of postponing or forgoing some planned expenditure. But can this really be called hardship?
Let us take the extreme example of the lowest paid central government employee, say a peon, working in Delhi. Let us say he is at the starting point of his salary ladder, that he is the sole earner of his family of five. His basic pay would be Rs 18,000. His current take-home salary including the existing DA (that would remain untouched), house rent allowance, transport allowance and sundry other benefits is about Rs 30,000 per month. We might think of him as lower middle class, if not lower class, because we are innocent of the economic realities of our country. If we place him against the income distribution of urban population, he would be above 85 percentile! (I have used figures for per capita monthly expenditure from NSO’s 75th round of 2017-18, adjusted for inflation up to March 2020. But the picture does not change if you take any other comparable survey.)
We need to remember this before we argue about hardship: the least paid regular employee of the government earns more than 85 per cent Indians. Compare his Rs 30,000 a month with the Delhi government’s recommended minimum wages (observed in breach) of Rs 14,842 for unskilled workers. At any rate, he would be forgoing, on an average, about Rs 1,500 per month of additional income. That does not qualify as hardship at a time when a big chunk of our population is staring at zero income.
The fact is that sarkari salaries are completely out of sync with the prevailing wages in the market. So, if the economic situation of India demands stronger measures than the freeze proposed by the government, the higher-earning employees (say, those with monthly income above Rs 1 lakh) may be given a part of their salary in government bonds. In a country where a majority of families survive on less than Rs 10,000 a month, and at a time when they are staring at zero income, those who earn six-figure salaries cannot grudge a pay cut.
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Sharing and shedding
Cutting public sector salaries cannot be the sole or main form of resource mobilisation. These must travel to the private sector, including the CEOs. This is the moment to think afresh about smartly designed inheritance tax, wealth tax, urban vacant land tax and capital gains tax. This is the best occasion to do away with unproductive subsidies (tax foregone) to the well-off and to levy costs of carbon footprint. This is also a moment to rethink our defence budget. Anyone who thinks this is going back to bad-old socialism, Gandhism and the Greens has not been keeping up with mainstream economics in Covid-19 times.
As we move towards a new economic reality with the partial lifting of the lockdown, battle-lines are being drawn for what could be a quiet but intense fight between the rich and the poor, a cold class-war as it were. Faced with the possibility of scarcity, the first instinct of the well-heeled would be to protect their privileges and profits at the cost of lives and livelihoods. Such a response would be fatal for majority of Indians, for our economy and eventually for the elite as well.
In these extraordinary times, the question is not why the privileged should share their fortune with the rest of society. The question is: why not?
The author is the national president of Swaraj India. Views are personal.