Who is a Babu?

This is a slightly different piece from the ones that I usually write for The Daily Reckoning newsletter. In this piece I will try and define a babu.

So who is a babu? More than coming up with an exact definition, it is easier to just visualise him, in a cynical sort of way. He is the quintessential government employee, not reaching office before 11PM, sitting on a chair all day and not working, taking regular breaks for having cups of tea under the banyan tree outside his office, with a constant eye on the watch, so that he can leave office the moment it strikes 5PM (or may be even 4PM in some cases). Oh and of course, to do any work the babu needs to be paid a bribe (how could have I missed out on that).

The Bangla singer Nachiketa has a fantastic song defining a babu, it’s called aami sorkari karamchari (I am a government employee). Those who do not understand Bangla can listen to the Hindi version of the song by the same singer here. I guess a better song has not been written stereotyping the government in India, since this song came out sometime in the 1990s.

Now to get back to the topic at hand. So we have some sort of a definition of who is a babu, in place. But why am I talking about babus today? The Seventh Pay Commission has recommended a 23.6% overall increase in the salaries of central government employees and the pensions of retired central government employees, who are typically referred to as babus.

This has led to a lot of outrage on the social media in particular and the media in general. People have raised a lot of rhetoric around whether lazy government employees need to be paid so much when they cannot seem to get any work done. Some people have asked why do salaries of corrupt babus need to be increased. Still others have asked, why can’t the government decrease its size and not need to pay so much to so many babus.

In fact, the Seventh Pay Commission report has some data which will surprise you on this front. At least, it did surprise me. As on January 1, 2014, the central government employed a total of 33.02 lakh people against a sanctioned strength of 40.49 lakh.

Of the 33.02 lakh employees, 9.80 lakh were employed by the ministry of home affairs. These primarily include individuals working for the central paramilitary forces like central reserve police force (CRPF), Border Security Force (BSF) etc. The Railways employed another 13.16 lakh. The Defence employed another 3.98 lakh in civilian positions. And the Postal department employed 1.98 lakh. Though there is some controversy here.

The data obtained by the Seventh Pay Commission puts the number of employees working for India Post at 1.98 lakh. The expenditure budget of 2014 puts the number at 4.6 lakh. And data from Directorate General of Employment and Training suggests that the number of postal employees is at 2.09 lakh.

In fact, the same variation is seen when it comes to the number of people employed in defence in the civilian position. The expenditure budget of 2014 suggests 34,813, the DGET 3.75 lakh and the data obtained by the Seventh Pay Commission puts it at 3.98 lakh. I wonder how can there be such a huge difference between different estimates.(Regular readers of The Daily Reckoning readers will also appreciate here, how difficult it is to write anything that is data oriented in India). Anyway, getting back to the matter at hand, for the sake of this analysis we will stick to the numbers that the Seventh Pay Commission has obtained.

If we were to leave out those employed by railways, post and ministry of home affairs, and those working in defence in civilian positions, the central government employs just 4.18 lakh people and that is clearly not huge in a country of more than 120 crore people.

Also, people working for the central paramilitary forces and even defence in civilian positions, clearly cannot be considered to be as babus, in the strictest sense of the term.

The India Post employees can possibly be considered as babus. If we add their numbers, then we get a 6.08 lakh central government employees who can be labelled as babus. While, the railway employees are not exactly known for their efficient way of working, but railways is an essential service and you need people to run it.

As the Seventh Pay Commission report points out: “In fact the number of personnel working in the Secretariat of ministries/departments, after excluding independent/statutory entities, attached and subordinate offices will add up to less than thirty thousand6. The ‘core’ of the government, so to say, is actually very small for the Government of India, taken as a whole.”

While it is not easy to compare one government with another, the Seventh Pay Commission does make an attempt to do that. As the report points out: “Available literature indicates that the size of the non-postal civilian workforce for the US Federal Government in the year 2012 was 21.30 lakh. This includes civilians working in US defence establishments. The corresponding persons in position in India for the Central Government in 2014 was 17.96 lakh8. The total number of federal/Central Government personnel per lakh of population in India and the US works out to 139 and 668 respectively.”

What these data points clearly tell us is that the Indian government is not big at the central government level, at least. There is a “concentration of personnel in a handful of departments” like home ministry and railways ministry. The department of revenue is other big employer, the report points out.

So what can we learn from this? First and foremost that the central government may have babus who are not efficient at work, but it doesn’t have too many of them. A major part of the increase in salaries recommended by the Seventh Pay Commission will go to the paramilitary forces, railways and defence personnel.

So a smaller government in terms of number of people at least at the central government may not be possible. Now this realisation has important repercussions.

The Seventh Pay Commission’s recommendations will cost the government Rs 1,02,100 crore. Hence, even though the number of people is not huge, the salary plus pensions bill is huge, given the earning capacity of the government. And if the government continues to work in the way it currently is, there is a very good chance that this increased expenditure will end up screwing up the finances of the government like it had after the recommendations of the Sixth Pay Commission had been accepted in August 2008.

Given this, the government needs to work in a very efficient way. It needs to get rid of loss making public sector enterprises like MTNL and Air India. It also needs to raise more money by strategically selling its stake in other profit making public sector enterprises. It needs to make an inventory of all the land held by public sector enterprises and look at various ways of monetising it.

Further, steps need to be taken to increase the tax base, instead of taxing the same set of people over and over again. Domestic black money needs to be concentrated on. Right now the government clearly does not earn enough to finance the increase in salaries and pensions recommended by the Central Pay Commission.

Also, with people living longer and other developments like one rank one pension (which the seventh pay commission has recommended for all central government employees), the pension bill of the government is set to shoot up. In this scenario it is important that the government move the sections of the government still on the defined-benefit pension to defined-contribution pension.

The Seventh Pay Commission has also recommended a minimum pay of Rs 18,000 with effect from January 1, 2016. The allowances and other facilities will be over and above this pay. At lower levels the government pays much more than the private sector. And this explains to a large extent why you hear engineers, PhDs and doctors applying for jobs at lower levels of the government. This is an anomaly that needs to be set right. But I am not sure how determined this government (or for that matter any other government would have been) is to challenge the existing way of doing things.

The column originally appeared on The Daily Reckoning on Nov 24, 2015