Editorial: Growth, Salaries and Delivery

Sikkim’s smart rate of growth, as measured in GDP and GSDP terms and as calculated by DESME and reported in the Monday edition of this paper, makes for interesting reading. Sikkim is powering ahead on a stronger clip than the country but when one looks beyond the 8.14% growth posted by Sikkim for 2010-11, one will realise that the economic buoyancy is essentially floated by the State exchequer and the purchasing power standards held up by what the State pays out by way of salaries and wages to its employees and payments for supplies and contracts since it is also the largest consumer here. GSDP is the total income of the State or the market value of goods and services produced using labour and other factors of production at current prices. Since government salaries and wages make up nearly 24% of the State’s Gross State Domestic Product, this sector should perhaps be understood better.
The latest Report of the Comptroller & Auditor General of India for Sikkim [for the year ended 31 March 2011] informs that salaries and wages alone accounted for 41.01 per cent of the revenue receipts of the State for the financial year 2010-11. This was an increase of 6.30 per cent over the preceding fiscal. When it comes to revenue expenditure, the pay out on salaries consumed 43.85 per cent of this head. Pensions, in turn, accounted for 7.44 per cent of revenue receipts and 7.86 per cent of the total revenue expenditure. For comparison, consider the salary account for preceding years - salaries accounted for nearly 32.91 per cent of the revenue receipts and 42.98 per cent of the revenue expenditure in 2007-08. The expenditure on salaries increased from Rs. 355.97 crore in 2003-04 to Rs. 492.91 crore in 2007-08 registering an increase of 38.47 per cent. In 2010-11, salaries and wages cost the State exchequer Rs. 882.31 crore. If broken up into plan and non-plan expenses, salaries and wages made up 66.01 per cent of the Non-Plan Revenue Expenditure in 2010-11. The pressure of paying out salaries and wages is so huge that it is now eating into the development expenditure of the State.
Dry economic terms serve well to downplay the import of what the figures tell and hence we explain these terms to drive home the share of salaries to what the government spends. Revenue receipts, of which salaries use up 41.01%, comprise interest and dividends on investment made by the government. Revenue expenditure, nearly 44% of which is towards salaries, is the cost of resources consumed or used up in the process of generating revenue. With 44% already spent on salaries, it is hardly surprising that not enough is left for the other components of revenue expenditure like maintenance, loan servicing, subsidies, etc. This is very superficial economics at best, but should serve the purpose for now. To get a better grip of the kind of money the government pays its officers to work for the people, revenue expenditure should be compared to capital expenditure. Revenue Expenditure is the cost of maintaining the bureaucracy and other liabilities of the State and Capital Expenditure is the amount spent on creating real assets. The commissioning of a new road for example, is capital expenditure, and its maintenance, revenue expenditure. Of all the expenditure incurred by the Government, the most important, as far as the lay citizens are concerned, is Capital Expenditure and the non salary component of Revenue Expenditure. As things stand, Revenue Expenditure makes up a staggering 81.50 per cent of everything that the Government spends. In lay man’s terms, for every Rs. 100 that the Government spends, nearly Rs. 82 goes towards paying salaries and maintaining offices and assets to ensure that the remaining Rs. 18 gets spent properly. The need to realign the allocative priorities to improve the quality of expenditure is obvious. Unfortunately, if one were to look at the existing debates in the public domain, no one is even alluding to it yet – not the government, and definitely not the employees. The slant is instead towards further increasing the Revenue Expenditure share even more. Since the resources are not limitless, maintenance is the first casualty and then the Capital Expenditure will get curtailed.
This confounding economic model is now the one from which there is no escaping anymore, and what should perhaps be drawn into sharper focus is that the handsome remunerations are at least matched with dignified delivery of services.