Old Pension Scheme Didn't Figure In Vajpayee’s Vision And Modi Didn’t Dilute His Decision

Old Pension Scheme Didn't Figure In Vajpayee’s Vision And Modi Didn’t Dilute His Decision

OPS failed to create any effective impact in the recent state polls though the BJP took the risk of lakhs of employees’ announce in the five states

KS TomarUpdated: Monday, December 18, 2023, 01:54 PM IST
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It was a farsighted, extrapolative and prophetic vision of late prime minister, Atal Bihari Vajpayee who took a daring decision of replacing the old pension scheme (OPS) by 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.

Notwithstanding the fallout of annoyance of lakhs of employees on the negative outcome of Himachal and Karnataka elections for BJP, prime minister, Narendra Modi took a political risk in five state assembly polls and refrained from succumbing to the pressure of the employees to promise the restoration of OPS. The poll researchers have found that arithmetic of net impact of negativity of employees could not influence the outcome of polls in any significant manner in recent state elections which has closed the door of the negotiations by the NDA government to exhibit any flexibility on this issue to revert.

Congress may stick to OPS in 2024

Contrary to it, in a desperate bid to improve performance in 2024 , Congress may stick to its stand about OPS and lay emphasis on 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 BJP on this issue. Congress is optimistic that a majority of more than 4 crore 60 lakh employees and their families will vote for 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 lakh crore and Rs 90,000 crore respectively. OPS will put an additional burden of thousands of crores on state exchequer. Keeping in view the stand of center about OPS, the new BJP government in Rajasthan is unlikely to continue the process of implementation of OPS for state employees as it happens to be a baggage inherited from the Gehlot government which does not make it obligatory to implement it.

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 union government informed the parliament that over 2.54 lakh crores were spent on pension liabilities of 70 lakh central employees during 2021-22 which will attain an upward trend with every passing year. States burden will be more than RS 1.56 lakh crores per annum if OPS is implemented by them.

OPS yielded results in Himachal and Karnataka

Political observers say that even as old pension scheme (OPS) of employees acted as a ‘savior’ to ensure victory of Cong in Himachal Pradesh in 2022 and contributed substantially in Karnataka assembly polls but it miserably failed to save the Grand Old  party from humiliating defeat in state elections including  Chhattisgarh and Rajasthan which had already implemented the scheme. OPS promise could not yield a desired result in Madhya Pradesh though it can be attributed to several other credible factors also. Jharkhand and Punjab governments have also implemented OPS whereas Congress government in Karnataka has not implemented it yet and decided to reconstitute a one-member committee to study the pros and cons of OPS versus NPS. Obviously, at the instance of center, none of the states ruled by BJP has opted for OPS which reflects the union government’s well thought decision to protect the economy from fiscal prudence and economic disaster though it may be politically expedient.  

Economists opine that  insignificant impact of support of employees to help beleaguered Congress in three states may act as blessings 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 lifelong pension which is fifty percent 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 on March 31,2022 as against 5.78 trillion in 2021.

OPS may lead to economic distress

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 Cong party's poll promise of OPS though risk of losing the elections due to employees’ annoyance loomed large prior to polls. Experts are of convinced opinion that BJP trounced Cong in three states primarily due to several credible factors like prime minister Narendra Modi's Charisma, well-oiled machinery of RSS, vast resources, committed party cadres, an effective and advanced poll strategy, proper ticket distribution etc. which was like a Mirage for Congress party. 

The 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.

Rajiv Mehrishi, former union finance secretary and EX CAG had sharply reacted when the Rajasthan government decided to revert back to OPS in 2022. Mehrishi felt that it was prompted by 2023 assembly polls and predicted that it will encourage other states to opt for it as they may not be required to make contributions under NPS. Regarding Rajasthan, the EX finance secretary disclosed that it spends Rs 29,000 crore on pensions and has a primary deficit of Rs 29,400 crores (2022-2023 BE) which means that it has to borrow money to pay interest liabilities. Due to political domineering of populism, the situation will be worse by 2035, when it will be hit by a pension storm following the retirement of those who were originally employed under NPS.

RBI and center are opposed to OPS

According to an article published in a Sept. bulletin of 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 center and states coupled with 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.

A cursory look at the BJP’s spectacular victory in three states exhibits that despite employees’ support, Congress failed to retain power in Rajasthan and Chhattisgarh which had implemented OPS one year prior to polls and made a promise to revert to the old scheme in MP also. In view of disastrous fallout of OPS,BJP may opt for via media thereby making some improvement in NPS and process may be accelerated in coming days.

(Writer is political analyst and senior journalist based in Shimla)

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