By Rakesh Joshi. Executive Editor, Business India

Pension schemes around the world, whether contributory and market-linked or underwritten by the exchequer, are facing a crisis, due to multiple factors, including demographic reasons. According to the Reserve Bank of India, the total Budget estimates of various states and Union Territories for pension in 2023-24 was Rs5,22,105.4 crore, which is between 6-21 per cent of their total revenue receipts. That may get further aggravated as the Modi government is set to restore guaranteed pension for its employees, meeting their demand halfway, and weakly trying to hold on to principles of fiscal prudence.

With his move, the multiparty consensus that had led to the ushering in of pension reforms in the 2000s has now unravelled. Several state governments such as Rajasthan, Punjab, Himachal Pradesh and Chhattisgarh had announced a shift back to the old pension scheme, as the clamour against the new pension scheme by a small but vocal section of the electorate gained traction.

In the bargain, the Modi government has succumbed to political pressure. The New Pension Scheme (NPS), which was market-linked and managed by an autonomous entity, was introduced during the stock market boom. Two decades later, when people began retiring under the NPS – those who joined after 1 January, 2004 – it turned out that they were receiving much less than what they would have got under the old scheme.

With the Congress making the restoration of the old scheme a central piece of its politics, the BJP was pushed to the corner. A committee led by former Finance Secretary and Cabinet Secretary-designate T.V. Somanathan devised a middle path that involves employee contributions and enhanced share from the Centre. The Unified Pension Scheme (UPS) promises a pension of 50 per cent of the average basic pay of the last 12 months before retirement and a minimum pension of Rs10,000 for those who worked for at least 10 years. The Centre’s share towards the scheme was increased from 14 per cent under the NPS to 18.5 per cent.

Prime Minister Narendra Modi has said will ensure government employees dignity and financial security. Economists, however, believe that the BJP and the government should note that no reform can be sustainable without broad political consensus. Also, social security for older people must cover the widest segment of the population.

The larger issues

Government employees are an organised pressure group, and having managed to restore their guaranteed pension, have largely welcomed the UPS. But the larger issues remain. While pensioners argue that it is their deferred wages, governments say that pensions from the exchequer are at the cost of future generations. Governments are outsourcing jobs through contracts, and resorting to innovations such as Agnipath, and the ballooning of pension bills is among the reasons that drive such measures.

Governments are also leaving posts unfilled. All such measures are leading to two things. First, it negatively affects state capacity, and second, it reduces avenues for government and public sector jobs for India’s expanding number of young job seekers.