Columns | Indraprastha
The “biggest revadi”
Reverting to the old pension scheme
09 Dec, 2022
FORMER DEPUTY CHAIRMAN of the Planning Commission Montek Singh Ahluwalia deserves credit for calling out the culture of freebies. Among the handful of bureaucrats close to the former regime, Montek minced no words, describing the rollback of the pension reforms as the “biggest revadi of them all”. That the Congress governments in Rajasthan and Chhattisgarh had reverted to the old pension scheme did not seem to matter. The professional economist in him could well gauge the huge financial damage the old pension scheme (OPS) would do to the state finances. Barring the Bharatiya Janata Party (BJP), most other political parties are now committed to abandoning the new pension scheme. Completely unmindful of the worsening state of their finances, ruling parties in the opposition-ruled states seek to woo the small but vocal constituency of government servants, both retired and serving, by reversing one of the more consequential reforms of the Vajpayee government ahead of the 2004 parliamentary polls. Truth be told, the UPA government headed by Manmohan Singh in which Montek was an important functionary, did not only not reverse the reform but actually went on to implement it with sincerity. The economist in Prime Minister Singh could see merit in the pension reform. It is another matter that he cannot seem to muster the courage—when did he have it?—to tick off his party governments not to undo a reform which might yet save governments from going bankrupt. At least when someone like Montek, whose proximity to Singh was so well known that they often described him as “the son that Manmohan never had”, finds the reversion to OPS as the worst kind of revadi, Narendra Modi’s coinage for freebies, opposition leaders should pay heed. How disastrous is OPS for the finances of the states is amply clear from the data collated by the Comptroller and Auditor General (CAG). In some states, the pension bill already exceeds the outgo on salaries and wages of the employees. Payment of pensions constitutes a big chunk of the committed expenditure of state governments. In Himachal Pradesh, three-fourths of the tax revenue goes towards pension payments alone. In Punjab, where the Aam Aadmi Party (AAP) government is threatening to roll back the pension reform, more than 30 per cent of the tax revenue is already earmarked for pension payments. A cursory reading of the data should leave no one in doubt that future generations will have to pay for the profligacy of politicians who, in search of shortcuts to power, play havoc with the states’ meagre resources. The pension bill of all governments has increased exponentially in recent years due to the mandatory dearness allowance equalisation under OPS. Fifty per cent of the last basic pay drawn plus the prevailing rate of dearness allowance constitutes pension under OPS. On the other hand, under the new pension scheme (NPS), which became effective on January 1, 2004, employees were expected to contribute 10 per cent of their basic pay, with the government making a matching contribution in the pension fund, which was to be invested in safe financial market instruments for augmenting the retirement benefits of NPS members. Admittedly, politicians don’t have a head for budgetary figures, but the CAG data speaks so loudly that you have to be dumb not to make sense of it. Of the total committed expenditure of the Centre in 2019-20, pensions alone accounted for `1.83 lakh crore, while the outgo on salary and wages was `1.39 lakh crore. This is not all. The interest payments and servicing of debts claimed a whopping `6.55 lakh crore. If 40 per cent of the total revenue of the Central government is earmarked for committed expenditure, there is naturally a huge constraint on spending for development, education, health, defence procurement, etc. Incidentally, several local governments in the US have gone bust paying pensions because growth in revenue did not keep pace with the increase in the pension bill, and also owing to higher life expectancy. Both factors are duly at play in India.
YOU HAVE TO GIVE it to the Modi government. Hindutva permeates every facet of its functioning. Even in the colourless, formless spectrum. This is what, among other things,the draft telecom bill has to say: “In a way, spectrum is similar to atma, which is ajar, amar as described in Shrimad Bhagavad Gita. Like atma, spectrum, too, does not have any physical form. Yet, it is omnipresent.” Amen.
About The Author
Virendra Kapoor is a political commentator based in Delhi
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