The Telegraph
Since 1st March, 1999
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- Corporate India, not the government, should restrict pay hikes

Marketing people talk of two Indias: ‘India’ and ‘Bharat’, signifying the difference between urban and rural Indian markets. Economists calculate the Gini coefficient to measure the extent of inequality. Like the large sample surveys by the National Council for Applied Economic Research, it shows a decline. Over the last twenty years, the very poor have begun buying manufactured goods and the number of the “rich” has also risen. In 1989-90, they were 1.4 per cent of all households; in 1999-2000 they were 6.9 per cent. Among them, the number of ‘very rich’ is growing as well. This trend has continued in recent years.

The prime minister commented on the rising salary differentials between private-sector executives and the rest. He warned of a strong negative reaction as the poor saw the lavish lifestyles of the well-to-do, especially since they are now aired on television and seen by many. The reaction of industry was as expected: namely, corporate salaries must keep pace with the rest of the world, not all executives were as highly paid, and that it was wise of the prime minister to warn against ostentatious living.

The differentials today are much wider than they have ever been. To give a personal example, in 1956, as a research assistant for a while in the second finance commission, my salary was Rs 200 per month. Soon after, as lecturer in a college in Delhi on the new UGC scales, I got Rs 315 per month. Many friends had joined the Central government services on a starting salary of Rs 400 per month. When I entered Hindustan Lever in 1957 as a management trainee, my salary was Rs 575 per month. The differentials between white-collar professions like research, academia, government and private industry were not very wide. Those were also the days when the government regulated salaries in companies. A managing director of a large company could get a maximum of Rs 7,500 per month plus perquisites. Many got a lot less. Government and public-sector salaries were lower than in the private sector, but not by as much as today.

I wrote in 1992, when McKinsey set up in India and were recruiting IIM-Ahmedabad graduates at Rs 50,000 per month, that such salaries could bring back government control on managerial remuneration. McKinsey’s response was that IIM-A graduates were as good as those from the Harvard Business School who were paid $50,000 per month at the start, and that the salaries compensated for the risk that the jobs were not secure, since they depended on performance.

Today, Rs 50,000 (and more) per month in industry is available to almost any good post-graduate in management or economics. The faculties that teach them get paid at the highest level, around Rs 35,000 per month. A call centre employee might earn Rs 20,000 or more. An air-hostess at age 20 probably earns around Rs 30,000. In contrast, a young person with a good academic record, after five years’ slogging to earn a PhD, might get a job in teaching or research in India at between Rs 8,000 to Rs 12,000 per month. Differentials in white-collar jobs have now reached levels that give powerful new signals to young graduates on their selection of employment. The weakest signals are for teaching and research in India, since a young and bright person can earn a lot more in occupations which are less demanding on him mentally.

We like to boast of our demographic dividend because of the large numbers of our young people. But the dividend depends on how well we educate these young. When college lecturers are paid a gross of around Rs 12,000 per month, and a professor at the end of 30 years of service around Rs 30,000, bright young persons move away from teaching or research. If a young person is very bright, he might go abroad, where remunerations in academia are much better. More such bright women tend to stay back in India, as borne out by the growing numbers of women in research and teaching. The diversion away from Indian academia of the best and the brightest is lowering the quality of teaching and research in the country, and hence the quality of higher, professional and technical education. It debases the quality of the large numbers receiving such education and will have an adverse impact on our competitiveness.

Schooling is in a worse mess. A primary school teacher is paid Rs 8,000 to Rs 12,000 per month, with small increments each year. Apart from needless controversy on whether English should be taught and when, poorly designed curricula, controversial text books, primitive school buildings, many without toilets or water, this has led to a widening gap in the quality of school education between the poor and the well-to-do. New schools for the affluent offer much better remuneration and attract very well-qualified teachers. For the vast majority, government schools teach little because of the poor quality of teachers. School teachers have a record of poor attendance, when they could have helped make little-known schools develop a qualified work force.

Widening income differentials, and the much better education that the affluent can afford, exacerbate the disparities between the affluent and vast numbers in the unorganized sector, whose incomes are a fraction of what the affluent earn. The Arjun Sengupta commission estimates the numbers in the unorganized sector (including agriculture and other self-employed ones) as 396.7 million in January 2000, of which 232.8 million were in agriculture. This is where most of our very poor are engaged. The average daily earnings of all such casual workers were Rs 39.67, with women earning Rs 29.06 and men Rs 44.85. Almost 70 per cent were earning below the legal minimum wages. These millions are in a world lightyears away from corporate executives, call-centre employees and air-hostesses. The availability to them of good and affordable education, health services and sanitation is extremely poor.

Government and public-sector employees have the pay commission to periodically improve their salaries. Organized labour has trade unions. The unorganized sector and teachers and researchers have no such saviours. Ignoring the huge numbers in the unorganized sector is wrong in a democracy. Neglecting academia and the masses will stultify India’s growth potential.

However, the answer is not to once again give the government the power to restrict salaries in the private sector. Corporate India would certainly do well to restrict steep pay rises only to outstanding performers. Shareholders must be helped to become more proactive in this respect. The new movement towards corporate social responsibility will also improve the corporate image, allow employees to connect with the deprived in India and help uplift them.

For the unorganized, the Arjun Sengupta commission has made recommendations that should be accepted and honestly implemented. These include a social security scheme, enforceable minimum wages, and extension of the national rural employment guarantee scheme to cover everyone. Such a scheme could be made foolproof by using information technology as in Andhra Pradesh, to ensure transparency and avoid leakages. In addition, creating an independent regulatory framework that will monitor the implementation of such schemes, and imposing severe penalties for cheating can improve the reach of such schemes to the deserving.

For teachers and researchers, we need a good system of minimum work norms, measurement of performance, substantial incentives for good performers, a better minimum wage than is the case at present, and penalties for performing below norms. This will require not merely budgets but also a much better administrative capability for education than we have today. If politicians could focus on such matters instead of adopting populist measures like reservations, we might see considerable improvement soon in the quality of education for all.

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