Do rich politicians merit a salary hike to beat inflation? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Do rich politicians merit a salary hike to beat inflation? 

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In this issue:
» How will government tackle inflation problem?
» BJP blames Congress for price rise
» The new land acquisition law is proving to be a curse
» Can Modi outdo Obama in healthcare?
» ...and more!

First you had the rail fare hike. Then import duty on sugar was raised fuelling expectations of sugar price hike. Later petrol and diesel followed suit. Even onions weren't left far behind bringing tears to common man's eyes. And the latest entrant to this coveted price rise list is LPG cylinders.

Such has been the stigma of price rise that not only common man but even politicians are gripped by its fear. And in a rare case of unanimity, are demanding an increase in salary and perks that are already pegged at Rs 50,000 per month. We are talking about the legislators of the UP assembly who never seem to be worried about the power deficit situation in their state or for that matter increasing crimes against women.

Mind you this demand is coming from an assembly that has 271 multi-millionaires amongst its total strength of 403 members! In other words, more than 2/3rd of the house members could be deemed richie-rich.

Yet, they are worried about rising inflation. In fact, one legislator even went ahead and gave a suggestion of pegging their salaries to consumer price index! Some other compared it to the global benchmark and stated what they get is pittance.

And the irony is that even the CM of UP is open to the suggestion of salary hike. Previously the same CM had also mooted the idea of providing fuel guzzling SUVs to legislators from government money when he won the election in 2012. However, later the idea was dropped amidst public outcry.

Well, but for now let's turn our focus back to the salary issue. It is not that we are against salary raises. After all, these legislators work for the betterment of the society and they obviously need to be remunerated for the work they do. However, the irony here is that they are least bothered about their duties as state administrators and are just focused on personal gains.

Have you ever heard any legislator suggesting that salary of PSU employees should be linked to CPI? Also, if Rs 50,000 per month isn't sufficient to meet necessary expenditures, how is the common man in the state surviving who lives on daily wages? Also, just in case, let's assume that the raise comes into effect. In that case, will it translate into better efficiency and governance? The answer is anybody's guess.

The fact is that these legislators hardly ever seem to have people's interests as their topmost priority. All they are seen doing is transfer wealth from public exchequer into their own pockets. They rarely focus on administration or law & order situation. We hope that the CM mulls over these issues when considering the salary hike proposal.

Also, it is high time that the new government aligns the compensation of politicians to their performance. Only then will the taxpayers' money get appropriately utilized.

Do legislators deserve a salary hike despite falling short of public expectations? Let us know in the Equitymaster Club or share your comments below.

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With the kind of economy they had inherited, it was never going to be easy for the Government to bring back the 'Acche Din' fast enough. However, what it had perhaps not anticipated was the additional challenges that might come its way. Two of the biggest ones currently are the Iraq crisis and a strong possibility of a below par monsoon. And both of these are feeding the demon the Government fears the most. The demon of inflation that is. While the Iraq crisis is leading to hike in prices of fuels like petrol and LPG, a weak monsoon is dealing a huge blow to the prices of everyday consumables like the onion. Last heard, onion prices have gone up by a whopping 90% in the last one month alone. And if this was not enough, the situation can actually get worse before it gets any better.

To be fair to the Government though, it will be too premature to assess the Government's performance just yet. Therefore, people will have to be patient and reserve their judgement till at least the next couple of years. And the Government too should be careful that it does not take any short term populist measures that continue to cause harm over the long term.

We have often stressed that the main culprit behind high inflation has been supply side constraints. However, these are not just structural and natural in nature. In some cases, the price rise has been artificially created for the sake of personal gains. Take the case of food inflation for instance - the key reason behind high inflation in India. Despite robust production of food grains in India, a lot of it gets wasted due to lack of transportation and logistics infrastructure. While that in itself is a huge challenge to deal with, the new Government has recently highlighted the issue of hoarding and black marketing of essential commodities. These include items like onions, pulses etc. The BJP has put the blame on Congress for abetting such practices and has suggested crony capitalism. Well, it's high time such blame games are put to rest and some serious steps taken to tackle this menace once and for all.

The list of hurdles that India's infrastructure projects have to overcome has only multiplied over the last few years. Time and cost overruns have rendered several important projects unviable. These may have been due to inadequate capital, environmental concerns, regulatory bottlenecks or red tape. As per Hindustan Times, at the end of December 2012 there were 92 unfinished infra projects. Together they were worth more than Rs 10 bn and the total value of the completed projects would sum up to Rs 7 trillion. Thus it was pertinent that the government put in place policies to fast track the projects. The land acquisition legislation that the UPA government enacted last year, however, has turned out to be a deterrent rather than a facilitator. The law is proving to be a major cost hurdle for industries that need to buy land. The land costs have jumped more than three times according to the formula stipulated in the new law. The law mandates securing consent of 80% of affected families for land acquisition for private sector and 70% for PPP projects. Due to such restrictive policies, infra projects that were scheduled to get completed by 2014-15 have stayed untouched. The new government should therefore make it a priority to set such faulty legislations right.

03:10  Chart of the day
The new planned hill city Lavasa Corporation had dropped its IPO plans back in 2010. It was a victim of adverse market conditions then. IPO market was dying. IPOs of Prestige Estates and Oberoi Realty in October 2010 were the last big ones. Since then the realty sector has had some sort of a lull. Incomplete projects and poor affordability continued to dampen the sector growth. The reasons vary from the higher interest rate regime and poor markets to low investor confidence. The lacklustre realty market has remained so for almost four years now. It seems the sector has got a fresh boost with a leading daily reporting about Lavasa filing for IPO again! But it would be too early to say that the worst is behind for the realty sector. While Lavasa Corporation may have set the IPO wheel rolling, execution skills of the developer and the demand and price sustainability alone can prop up the realty market.

Will Lavasa's offer bring realty IPOs back to life?
*Oberoi Realty, #Godrej Properties Ltd
$This chart includes IPOs with highest ticket size and is not an all-exhaustive list since 2009.

The three main areas that distinguish a developed country from a developing one are that the former has superior infrastructure, healthcare services and educational institutes. The Modi government is quite clear about ramping up India's creaking infrastructure. And healthcare has become a priority too. Indeed, an article on has stated how the government's healthcare push in the upcoming Budget can outdo even Obamacare. So far, government focus on healthcare services in India has been quite pedestrian. So much so that the responsibility of providing quality healthcare in the country has fallen on the shoulders of the private sector. But a large chunk of India's population cannot afford private healthcare. Which is why it has become important for the government to ramp up public healthcare services and make healthcare accessible and affordable to all.

The Modi government has woken up to this fact and appears to be working on a plan to set this in motion. Plans on the anvil include using more technology, improving reach to cover wider geographies, encouraging the domestic manufacture of medical equipment, focusing on R&D, promoting the use of generic drugs, training programs for healthcare staff and so on and so forth. It will be interesting to see how the government chooses to fund these initiatives given that government finances currently are in disarray. Nevertheless, from a longer term perspective, ramping up public healthcare infrastructure and services is a much needed medicine for the health of the country.

The Indian stock markets after opening firm have been steadily rising. At the time of writing, the benchmark BSE-Sensex was up by 301 points (+1.2%). All the sectoral indices were trading firm led by metal and power stocks. Most of the Asian stock markets were trading strong with Hong Kong and Korea being the biggest gainers. The European markets have opened the day on a strong note.

04:50  Today's investing mantra
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13 Responses to "Do rich politicians merit a salary hike to beat inflation?"


Jul 4, 2014

The people have elected them and they are paying for their mistakes!! what a tragedy



Jul 3, 2014

From the moment he is born the ordinary citizen is a victim of the notoriously inefficient and corrupt delivery system of Government. He is dependent on Government healthcare services,education,health,sanitation,housing,transportation,energy,water supply,food and when he dies the municipal crematorium. In every facet of life he is a victim paying the cost of inefficiency and corruption wherever any service even reaches him.The bureaucracy headed by the IAS/IPS and other civil services has become a self serving hydra headed monster or a criminal mafia in collusion with politicians and corrupt business interests sabotaging any effort at reform or system of accountability.People are expected to pay higher energy costs and transportation costs but who asks how state electricity discoms and the railways can cut their costs of operation by shedding their bloated,inefficient and corrupt workforce and adopting modern work practices with accountability? How can public medical services improve when all Government servants are allowed treatment in private hospitals in perpetuity and the IAS/IPS mafia and their families allowed treatment in foreign countries at Government cost borne by the deprived and oppressed citizens? Why not put impose a freeze on pensions to Government servants after a 10 year time limit post retirement rather than allow them to draw exorbitant pensions many times multiplied over their salary while in service and generously increased by regular reviews by PAY COMMISSIONS ? Why not abolish the archaic system of time scale assured promotions irrespective of merit followed in Government to be replaced by performance based promotions from the beginning of service? Politicians and civil servants have a "I scratch your back and you scratch mine" relationship, so once the root of the problem is tackled by cutting off the head of this hydra headed monster most of the problems will be automatically resolved.



Jul 3, 2014

Low salaries for elected representatives is one of the main reasons of corruption in India. Only if you have salaries comparable to the private sector will you have honest, educated and competent professionals entering politics which is not happening today. Right now politics is a career option open only for 1) the crooks and 2) people who are ready to do sacrifice their career and do social service. And that is clearly not working out for India.



Jul 3, 2014

MLAs and MPs are not full time Public servants. They are supposed to continue in the profession or business they were engaged in before election. They should be paid only sufficient allowances for them to discharge their duties as public representatives.

There perks should also be rationalised.


S K Srivastava

Jul 3, 2014

It is indeed a sad story of Indian democracy that in a country, where more than 65% population is poor, our public representatives and bureaucrats are leading royal life at public expense. They will not cut their own expenditure, it is only pubic who has to bear the cost of hard decisions. It is immaterial, who is in power, commen man has to bear heavy cost of maintaining s called democracy. In return only, ocassionly he get some freedom to ventilate his anger.

Like (2)


Jul 2, 2014

Salaries and perquisites of all MPs should be abolished. Then only genuine workers will remain in political fields. Now a days politics has become a business and this trend requires to be curbed.

Like (1)


Jul 2, 2014

yes salaries should be linked to inflation and reasonable. but all freebies( plane tickest/tel calls etc) to be stopped and perks to be converted into agreed (well before) cash component and should be taxable. now the final ; what about target? if it is achieved performance linked bonus should be there and if not achieved --- should the politician be barred from participating in future next 2/3 election?

Like (1)


Jul 2, 2014

Being a politician or a social worker is an avocation and not necessarily a vocation of the concerned person to earn money. Hence if somebody chooses to be a politician, he/she ought to accept the fact that he/she is there to serve the people irrespective of whether there is a pecuniary benefit or any other benefit of the similar nature. This being the nature of the politicians function, I am of the firm opinion that they are not entitled for something called salary, Dearness Allowance or any other benefit of pecuniary nature they are deriving now. Their job is not like that of a government servant or any other organisation who is working for salary and other benefits after having been agreed to be bound by the relevant service rules of the employer. Thus the relation of the politicians with the government is quite different from that from being "Employer-employee".In view of this they are not justifiably entitled to derive benefits which can be called salary and as such the question of granting hike therein to beat what they call inflation does not arise at all. The concept of salary etc., to politicians was not there for long time after independence. However, it was introduced by the politicians themselves in the recent past as they were the law-makers. Something that was perhaps granted as an exception has now become a firmly rooted law and is being enforced to their benefit at the cost of the people of the country.

Like (3)

Rasikbhai Gandhi

Jul 2, 2014

Rich members of legislative assembly or parliament should not get any raise. On the contrary they should not accept innumerable facilities which they enjoy at Govt's expence should also be curtailed. Their pensions for which they are eligible even if they serve only for one term also should be stopped.

Like (3)

D K.Sharma

Jul 2, 2014

In beating inflation price control is mandatory. So while hiking salary of anyone politician or employee it will add to inflation. While in case of politician they are supported by subsidised and indirect fascilites etc. So incase of rich politicians it does not appear to hike in salary as compared to employees.

Like (1)
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