Prime Minister Modi took a political risk in Assembly elections and did not promise the restoration of old pension scheme
It was a farsighted, extrapolative and prophetic vision of late prime minister, Atal Bihari Vajpayee who made a daring decision to replace the old pension scheme (OPS) with a market-driven and financially viable, national pension scheme (NPS) in 2003, which was not primarily dictated by short term benefits to present generation at the cost of future generations thereby protecting the states from an imminent fiscal distress and economic structural collapse.
Centre and RBI are opposed to OPS
According to an article published in a Sept. bulletin of the Reserve Bank of India, it was made crystal clear that states reverting to OPS may face unsustainable fiscal stress. The cumulative effect of OPDS could be 4.5 times higher than NPS with an additional burden of 0.9% of GDP annually by 2060. The authors have highlighted that while OPS may be more attractive to employees, it puts a significant financial burden on the government, unlike NPS, which aims to ensure good pensions while reducing the budgetary burden. As per research conducted 23 years back, India’s implied pension debt of centres and states coupled with the funding gap of the pension scheme was bound to reach unmanageable and unsustainable levels which may spell doom for the growing economy of the country in future.
OPS may lead to economic distress in future.
As per projection, states opting for OPS may land in serious economic distress and the burden will keep on multiplying every year especially when the burden will be exceeding lakhs of crore after ten years. BJP leadership could resist the pressure of its state leaders to counter the Cong party's poll promise of OPS though the risk of losing the elections due to employees’ annoyance loomed large before polls.
Prominent economists are vehemently opposed to OPS as it will have a cascading effect on the health of the economy in future. Montek Ahluwalia, former deputy chairman of the now-scrapped planning commission described the move by some state governments to implement OPS as absurd as it will prove a recipe for bankruptcy. BJP spokesman, Sudhanshu Trivedi had agreed with Montek’s views and asked Congress to ponder over their stand about OPS which could spell financial disaster. He asked Congress to refrain from spewing venom against Prime Minister Narendra Modi over this issue.
Congress may include OPS in INDIA’s Agenda in 2024
Contrary to it, in a desperate bid to improve performance in 2024, Congress may stick to its stand about OPS and emphasise making a poll promise to states and central employees. Some of the top leaders in AICC give statistics to prove the impact of OPS on central and state employees who are bound to oppose the BJP on this issue. Congress is optimistic that a majority of more than 4 crore 60 lakh employees and their families will vote for the INDIA alliance if it includes OPS in its 2024 manifesto.
Punjab and Himachal governments have implemented OPS though they are having debt liabilities of Rs 2.63 crore and Rs 90,000 crore respectively. OPS will put an additional burden of thousands of crores on state exchequer.
As per data, pension liabilities of the states account for 2.1% of the total expenditures and it rose by 8.9 % which is expected to grow unhindered in future. It is likely to go up to 7.98 % by 2040 because it has already witnessed an increase of 15.90% from 2014 to 2019. The old pension scheme (OPS) acted as a ‘saviour’ to ensure the victory of the Cong in Himachal Pradesh in 2022 and contributed substantially to Karnataka assembly polls but it miserably failed to save the Grand Old Party from a humiliating defeat in state elections including Chhattisgarh and Rajasthan which had already implemented the scheme.
Economists opine that the insignificant impact of support of employees to help beleaguered Congress in three states may act as a blessing in disguise for the economy in the states as well as the country because OPS has got potential to destroy the economic structure in states thereby affecting the country's ambition to emerge as a big economic power in the world. Employees prefer OPS as it guarantees a lifelong pension which is fifty per cent of the last drawn salary. On the other hand, NPS generates market-linked returns without any guarantee. The returns are taxable whereas OPS is free from any type of tax. Having 531.71 lakh subscribers, NPS assets were 7.36 trillion as of March 31, 2022, as against 5.78 trillion in 2021. Congress failed to retain power in Rajasthan and Chhattisgarh which had implemented OPS one year before polls and made a promise to revert to the old scheme in MP also. Given the disastrous fallout of OPS, BJP may opt for via media thereby making some improvement in NPS and the process may be accelerated in the coming days.
(The writer is a political analyst and senior journalist, Views are personal)
