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Home > Business > Special


The taxing task of downsizing

A K Bhattacharya | September 02, 2003

Strange are the ways in which the Union government manages its manpower expenditure. At a time almost every company is keeping a tight leash on expenditure on employees, the government hopes to achieve a rare and unenviable feat.

It has planned to reduce its employee strength by about 26,000 to 3.49 million by March 2004. But its total cost on account of pay, allowances and travel expenses on the reduced number of employees this year will go up by Rs 1,492 crore (Rs 14.92 billion) to Rs 34,343 crore (Rs 343.43 billion).

There are many who will not believe the government's numbers. For instance, nobody - not even senior government officials - is confident that the total number of civilian employees will decline by 26,000 this year.

In fact, they fear that like what happened last financial year (the number of employees increased by 92,000 over 3.42 million in March 2002), the number of government employees will actually increase and the wage bill will go up even further.

That is not surprising. Consider the government's track record in implementing the voluntary retirement scheme that was launched in February 2002 as a key instrument to achieve one of its stated objectives of reducing manpower.

The government had hoped that the scheme would help reduce its workforce by 50,000. And the scheme approved by the Cabinet was quite attractive. It had offered a minimum lumpsum amount of Rs 5 lakh and pension facilities.

But a year and a half later, only 37 government employees have signed up for the VRS. That's a pathetic response. What went wrong? Government officials say that the conditions attached to the scheme were responsible for its failure.

One of these conditions was that before an employee could opt for VRS, he had to be placed in the surplus cell of the home ministry. And that exercise of identifying employees to be placed in the surplus cell was excruciatingly slow. Only 300 people so far have been placed in the surplus cell!

There was yet another condition responsible for the scheme's failure. Apparently, the government went soft on the issue of dealing with employees placed in the surplus cell. In the original proposal, the government was to fix a maximum period of one or two years after which an employee placed in the surplus cell would be compulsorily retired.

But in the revised scheme that was eventually implemented, an employee placed in the surplus cell could continue to remain there till his normal retirement period. No wonder why only 37 out of those 300 placed in the surplus cell opted for the VRS. With no compulsory retirement being enforced, the rest must have decided to spend the remaining period of their service in the surplus cell.

It is important to recognise that the problem with the government's scheme for voluntary retirement is not what monetary package was being offered to the employees.

True, the compensation package appeared more attractive for the highly successful schemes for public sector banks (about 100,000 employees opted for VRS out of a total workforce of 863,000) and other entities like the Reserve Bank of India and even ICICI Bank. But none of these schemes offered life-long pension facilities, which the government offered.

Where the government made a big blunder was in leaving the task of identifying employees for placement in the surplus cell to individual ministries and departments.

First, no department or ministry would like to identify some of its own employees as surplus. Ministries don't even like to give up administrative control of public sector undertakings and, therefore, often try to create road-blocks to plans for divestment of government equity in them.

So, how can they be expected to furnish a list of people who can be sacrificed? Remember that many of them had earlier succeeded in scuttling the expenditure reforms commission's recommendations for closure of many departments and divisions.

Secondly, no VRS can succeed if the employees who opt for it are first treated as surplus. It is a scheme that has to be packaged well and sold to the employees with all incentives. The moral stigma of being branded as surplus can be too strong a deterrent for most employees.

Indeed, the success of the public sector banks VRS too would have been in jeopardy if their managements had first decided to identify the surplus employees. The eligibility criteria for a VRS can only be the age and nothing more.

Since it might appear a little odd to set up a new department to implement VRS in the government (but mind you, the government's privatisation programme got moving only after it created a new department for divestment), the next best alternative would be to either outsource the management of the VRS to some independent body outside the government or to the Prime Minister's Office.

The present system of expecting ministries to identify surplus employees and then hoping that the surplus staff would opt for VRS with no time limit will simply not work.


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