One of the main pledges adopted by all four parties in various forms in the 2018 polls was on a civil service pay hike and other benefits like equitable DSA etc.
The Druk Nyamrup Tshogpa (DNT), in its manifesto, had pledged two give two pay hikes to civil servants in its term. Its other pay related pledges are to review salaries annually taking into account the state of the economy and inflation, review and revise employment status of GSP and ESP levels and institute appropriate allowances for certain categories of civil servants.
DNT has also pledged to make the Travel Allowance (TA) or Daily Subsistence Allowance (DSA) uniform for all civil servants except for executives.
The DNT’s 25 pledges, to be carried out in 120 days, talks about instituting the fourth Pay Commission to review the salaries and allowances of civil servants.
Higher hike for lower and middle income civil servants
The DNT Spokesperson Dr Tandin Dorji said, “The DNT while coming up with this pledge had done a white paper on the issue. We will advise the Pay Commission based on this white paper whereby people at the lower income categories get a higher hike by avoiding a uniform percentage hike across the board as it will only mean a higher hike for those already getting higher pay.”
Dr Tandin said that they could also look at coming up with lump sum payments instead of percentage hikes to narrow the gap.
30% hike in 12th plan on already large pay & allowances
The draft 12th plan already has already provisioned around a 30 percent increase in pay and allowances. Already, civil service pay and related benefits eat up a huge chunk of the current budget.
The figures of the 2017-18 budget were used as a base to project pay figures in the 12th plan. As per the 2017-18 budget of the Nu 28.569 bn current budget, civil service pay, allowances, pension and retirement come to around Nu 13 bn, which is nearly half of the current budget.
Of the 13 bn, around 9.128 bn is pay and allowances for civil servants, then approximately Nu 3 bn is pay and allowances for civil or public servants in autonomous bodies and agencies including Thromdes, Royal University of Bhutan, Central Schools, etc. Nu 710 mn is for provident funds and Nu 215 mn is for retirement benefits.
This does not include the Nu 1.718 bn for in country travel and Nu 252 mn for out country travel coming to a total of Nu 1.970 bn a year, for travel.
The combined pay and allowances and the travel budget figures of civil servants come close to Nu 15 bn a year.
It is the above figure that deeply worries officials in the Ministry of Finance on two counts. The first is in terms of how it already consumes around half the current budget as the current budget is meant for running the government, maintaining public infrastructure, paying loan interest etc. The second worry is that as per the Constitution all current activities have to be financed from the country’s internal resources.
If the 13 bn in pay, allowances and benefits was increased by around 30 percent, then it would already have an additional budgetary impact of approximately Nu 4 bn a year or about Nu 20 bn in five years.
Since DNT had promised two pay hikes and also an annual review of pay then it is not clear where this additional resource will come from unless this 30 percent hike is split into two separate hikes.
Additional or increased special allowances will also suck up more resources.
DNT’s pledge to provide pension and provident fund to around 3,021 ESP and 2,589 GSP staff who are outside the civil service and hired on contract, will also have significant additional budgetary implications.
Uniform DSA rate
Another problem on the table is DNT’s pledge of a uniform TA or DSA rate for all, which is also expected to have a significant budgetary impact. In the 2017-18 budget the in country travel budget was already Nu 1.718 bn and a significant chunk of this is TA/DSA apart from mileage or transport fare.
With 28,973 civil servants as of June 2018 if a rough break-up is done then each civil servant used Nu 59,323 for in country travel.
Currently 13,889 civil servants are in the professional and management category of P 1 to P 5 and they get Nu 1,000 DSA per day and so this will remain constant.
The change will occur in the Support and Supervisory or SS level and the Operational or O level. The SS level comprising of 12,464 civil servants get Nu 750 DSA and 2,344 operational level civil servants get Nu 500 DSA.
DNT’s proposal is to give a uniform Nu 1,000 DSA to this SS and O level civil servants will significantly increase this Nu 1.718 bn amount for in country travel.
The impact will be more considering the fact that most of the travel or fieldwork among civil servants is done by SS and O level civil servants. An example would be forest staff on constant patrolling.
Another factor to consider is that civil servants in the Dzongkhags travel more than their counterparts in Thimphu. Of the 28,793 civil servants only 8,327 are in Thimphu while the rest 20,466 are in the districts.
In terms of out country travel the DSA is same for all civil servants for third country travel like Europe, USA etc. but the DSA rates are different in India. Here P 1 and P 2 officers get Nu 5,500 in state capitals while P 3 to P 5 get Nu 4,500, S 1 to S 5 get Nu 3,500 and O 1 and O 4 get Nu 2,500. Uniform DSA rates mean that all of the above will get Nu 5,500 per day in Indian state capitals.
The draft 12th plan at last hearing had reached Nu 336 bn but currently it has been scaled back to around Nu 309 bn, though the figures keep changing, and especially so now with a new government.
Of the Nu 309 bn around Nu 280 bn is supposed to come from internal sources including around Nu 61.65 bn in grants and there is a shortfall of around Nu 29 bn.
A big headache is that the 12th plan’s largest source of revenue which is hydropower is experiencing additional delays. The 12th plan had counted on the 720 MW Mangdechu commissioning by June 2018 but this has been delayed to November 2018 which is six months’ worth of lost revenue. The GNHC had projected Mangdechu based on a high tariff rate but this rate is yet to be finalized.
Another revenue hit has been the 1020 MW Punatsangchu II which was supposed to be complete by December 2021 but the date has been moved to the first quarter of 2022 again meaning lost revenue. Also , the 1200 MW Punatsangchu I project has suffered another delay as its last date of completion was December 2022 but this has been moved to the first half of 2023.
The 12th plan is already losing Nu 14 bn in internal revenue on account of the Goods and Service Tax in India whereby the previous government decided to allow the benefits to pass on to the people in fuel, consumer goods etc by foregoing the annual excise duty on them.
The draft 12th plan is already seeing a much larger current budget than capital budget with Nu 193.55 for current budget and Nu 116 bn for capital budget. This is a departure from past five-year plans where the current and capital budget where almost equal. The current budget has increased due to more maintenance works of past capital infrastructure like roads etc., pay increase and also higher loan interest commitments when projects like Mangdechu and others come online.
The big question is how will the DNT government pay for its pledge of two pay hikes and a uniform DSA rate.
The Prime Minister Dr. Lotay Tshering, said they would try to fulfill all their pledges.
The DNT Spokesperson Dr Tandin Dorji said that the DNT is very aware and it will go through the numbers carefully. He said that the when the pay commission is constituted, it will also look at the impact on the budget.
“We will mobilize funds if required and we do not have all the numbers now but we will fulfill our pledges,” said Dr Tandin. Dr Tandin said that there are sources of domestic revenue which can be raised as well as funding options from outside for the 12th plan.
Giving an example he said that DNT had studied the Revenue and Customs reports in detail and DNT has ideas on how to ensure more tax collection without touching the Fiscal Incentives.
Impact on Private and Corporate sector
The other question is even if the DNT fulfills its pledges on pay hikes and other goodies to civil servants what will be the inflationary and wage impact on the much bigger private sector which is already struggling to keep up. Past hikes have seen automatic jumps in house rents making life tougher for private sector employees.
A pay hike in the civil service will be followed by an automatic one in state owned enterprises like DHI and its companies among others leading to additional revenue impact.
In 2014 the civil service hike and house rent allowance cost the exchequer Nu 1.8 bn a year. This was after the Ex-1 to Ex 3 got a 19% effective hike, the P 1 to P 5 got a 21% hike, the S 1 to S 5 level got a 23% hike and the O 1 to O 4 level got a 25% effective hike.
The 2014 hike lead to a strong backlash against the former government for the benefits taken by the ministers and MPs. The MP’s took a 21% hike but what was surprising was the vehicle allowance being increased to 1 mn from Nu 700,000 along with the retention of a Prado Quota. The ministers pay increased from Nu 78,000 to Nu 130,000 while that of the PM increased from Nu 78,000 to 180,000. The ministers justified saying they missed two pay hikes and it was a recommendation of the last parliament but this did not wash with the public. The former PM tried to do damage control by giving up Nu 50,000 every month to charity but the damage had been done.
Soon after, DHI’s companies in 2015 gave a pay hike to its 6,627 employees following the 2014 civil service pay hike to keep the 15% salary gap which meant a revenue implication of Nu 426 mn a year. There was additional implication as other non-DHI SOE’s also increased their pay.