TODAY -

Successive pay commissions: It's impact

Dr Mayengbam Lalit Singh *



When there was interaction of Y.V. Reddy, the former Governor General of RBI, we were advised that the hike in pay commission would reduce huge subsidy on oil in our country. But there should be both positive as well as negative impact of revision of wage on economic sectors and constituents.

Price of crude petroleum has been rising over the years due to increasing demand in developing countries. Since oil is key commodity in the commodity matrix, the rise in its price is correlated with the rise in the cost of thousands of commodities.

The rise of cost of basic goods such as staple foods, fertilisers, pesticides, cement, etc. will have direct impact on wide ranging sectors. There are both organised and unorganised labours who are engaged in this basic sector. Wage commission will benefit those labours in organised sector.

However, those labours in unorganised sectors such as agriculture and various constructions will face hardships. Sudden rise in the prices of basic goods coupled with the rise of indirect taxes on the consumers' goods rob away previous wage.

It is witnessed that government normally takes time in issuing wage rate and its implementation for labours in unorganised sectors. Moreover, In Indian cities, it is reported that there is growing rate of this unorganised labours. In order to get employment for livelihood, they are found to work at shadow wage rate (which is less than official wage rate) floated by their employers.

Price of manufacturing goods is totally dependent on cost of above mentioned basic goods. Owing to rise in prices of basic goods and wage of employee, price of these manufactured goods will also rise. Employees will be benefited with new wage policies of government.

However, industrial casual/contractual employees are liable to meet hardships since government may not frame and implement immediate wage policies for them. Prices of all manufactured goods will increase and this will result in severe consequence in distribution. This was clearly evident in late 2007 just after implementation of revised sixth pay commission.

Textile industries across India had increased prices of wide ranging products which resulted in loss of market of Indian textile products in the international market. Especially in USA, there was high completion of Indian textile products with Chinese ones.

American consumers felt the hike in prices of Indian products without parallel increase in their quality. As a result, consumers diverted their choice from Indian products to Chinese ones. In order to compensate the loss, Indian government injected subsidies in this sector. Withdrawing subsidy from oil sector, but injection into textile and other export sectors is like out of frying pan into fire.

For service sector, all the labours involved are benefitted immediately since they anticipate hike in wage when government announces its policy. Traders and businessmen also divert the incidence of hike in prices to consumers.

But the hike in wage may impede in outsourcing industries. The outsourcing companies have their parent companies in developed countries where wage is comparatively higher as compared to wage of same job provided by client companies in India.

Difference in wages in parent and client countries incur to profit of the parent company. If nominal wage increases due to pay revision in India, the profit margin will decline and client company in India will likely be scraped. Shifting of these companies from India to developing Asian countries is very much looming.

Despite the implementation 7th pay commission on central government jobs, but jobs under state government are not yet entitled its implementation. However, there is hike in prices for wide ranging goods since cost of production soars up.

When these goods are shipped to Manipur, there should be further hike in price due to high transportation cost. So there will be loss in consumers' surplus in Manipur since we are far away from production site as well as not compensated with subsidy.

This may result in new consumption portfolio where most of Indian manufactured goods would be substituted with cheap smuggled goods through Moreh. Despite the new wage policy promised by 6th pay commission, there has been always shadow wage rate in unorganised sectors.

Moreover, there may be widening income gap between workers in organised and unorganised sectors for similar job. Let's take example, an employee gets Rs. 22000 (minimum pay in central governmental job) whereas a worker gets Rs. 9000 (shadow wage in unorganised sector). Their income gap can be measured by coefficient of range which is a common statistical tool.

The coefficient of rage for this particular example will be approximately 42% = [(22000 - 9000) / (22000 + 9000)] * 100 . In order to reduce this coefficient, state government has to implement wage policy for unorganised sector with immediate effect.

In order to save their earnings, poor and middle class groups in Manipur are found switching their consumption to goods smuggled from China and ASEAN countries.

It is duty of state government to campaign for dependence on locally produced goods so that consumption of entire earnings can be checked. Moreover, state government should emphasise on "Make in Manipur" policy to attract investors and incentivise local production.


* Dr Mayengbam Lalit Singh (Assistant Professor of Economics) wrote this article for The Sangai Express
This article was posted on 04 July , 2018 .


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