Few will dispute that the Indian economy’s recovery from the covid shock has been better than that of most other major economies, barring perhaps the US. If this admittedly K-shaped rebound is to continue apace and become more equitable, government spending must hold up; and, as a corollary, the health of government finances isn’t imperilled. Sadly, the ‘demands’ of electoral populism seem to be militating against fiscal prudence at a time we need it most: to use our limited resources for investments like health, education, law-and- order, roads, bridges, hospitals, etc. Instead, this poll season, we are witnessing a growing capitulation by the political class to what a vocal minority—government servants—wants. In a country inured to irresponsible poll promises of ‘freebies’ such as free water and electricity, and loan waivers, political parties have been promising the most dangerous of them all: A return to the earlier defined-benefit Old Pension Scheme (OPS) in lieu of the post-2004 defined-contribution New Pension System (NPS).
Unfortunately, as the unproven belief gathers ground that it was the promise of a return to OPS that was the deciding factor in recent state election wins, there is now the very real danger that more states, and possibly the Union government too, may follow suit. Five states—Chhattisgarh, Himachal Pradesh, Rajasthan, Punjab and Jharkhand—have already reverted to the OPS in fulfilment of pre-poll promises. Given the huge and unsustainable burden that the OPS imposes on the public exchequer, this would simply sound the death-knell for all attempts to put government finances on a much-needed even keel after the toll imposed by pandemic-related expenses. It would be an “unmitigated fiscal disaster," says Jayaprakash Narayan, founder of the Hyderabad-based Foundation for Democratic Reforms, which is leading advocacy efforts aimed at educating the public and political class on the dangers of going down that route. Consider: The OPS, which is both wage-indexed (i.e. linked to compensation of the existing workforce and hence hiked with each Pay Commission recommendation) and also indexed to inflation, is an unfunded liability (i.e. no contribution is made by employees during their work lives but must be paid out of current government coffers). The net result is that an increasing share of the administration’s resources, a huge chunk of which are borrowed since revenues are not enough, is going towards funding pensions.
Apart from the issue of inter-generational equity, with future generations burdened with higher taxes to service the debt incurred for pension payouts, if the OPS becomes the norm, governments will soon have no money for anything other than paying salaries, pensions and interest on past borrowings. Given rising longevity and a steady increase in pension emoluments, their pension bills are already larger than wage bills. This patently unfair situation, where 3.2% of the workforce has a claim over 18% of government revenue, even as nearly 90% of India’s workforce has virtually no social security, continues because public employees are vocal, organized and punch above their weight. Politicians fear their ability to sway election results and hence give in to their demands. Surely, it is about time the remaining 97% raised their voice and rallied together against this injustice, thereby helping politicians call their bluff. It stands to reason that 3% must not be allowed to run roughshod over 97%.
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It is time for India's 97% to speak up against the Old Pension Scheme
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20
07.11.2023
Few will dispute that the Indian economy’s recovery from the covid shock has been better than that of most other major economies, barring perhaps the US. If this admittedly K-shaped rebound is to continue apace and become more equitable, government spending must hold up; and, as a corollary, the health of government finances isn’t imperilled. Sadly, the ‘demands’ of electoral populism seem to be militating against fiscal prudence at a time we need it most: to use our limited resources for investments like health, education, law-and- order, roads, bridges, hospitals, etc. Instead, this poll season, we are witnessing a growing capitulation by the political class to what a vocal minority—government servants—wants. In a country inured to irresponsible poll promises of ‘freebies’ such as free water and electricity, and loan waivers, political parties have been promising the most........
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