OPS freebie a ‘good politics’ and ‘bad economics’

In India, state after state, the politicians are succumbing to the trap of freebie politics with the view to harness political gains at the cost of lopsided economic policies. As per the latest updates, after Rajasthan, Chhattisgarh, Jharkhand and Punjab, the state of Himachal Pradesh has vowed to replace the National Pension System (NPS) with Old Pension Scheme (OPS). These states are disregarding the economic flaws associated with the implementation of outmoded policies as they are overburdening the state exchequer with gigantic unfruitful liabilities.

The old elephant of OPS is expected to benefit a few and doom the majority

The political spectrum of India is clearly bifurcated on the issue of the pension scheme provided to government employees. The Bharatiya Janata Party, at the helm of power in the center, is batting for the National Pension System (NPS), while the anti-BJP political parties in various states are advocating for the implementation of the old pension scheme.

The “old elephant” that the anti-BJP parties are flaunting is aimed at denting the electoral gains that the BJP secured in the previous elections. Owing to the Old Pension Scheme, the Congress party succeeded in riding through the traditional vote bank of the BJP in the state of Himachal Pradesh. The success of the recently concluded Himachal Pradesh election has lured the incumbent government under the leadership of Sukhvinder Singh Sukhu to keep up with its electoral promise of implementing the Old Pension Scheme. The anti-BJP parties are counting on the issue of the pension scheme to dent the vote bank of the BJP in the upcoming 2024 Lok Sabha elections.

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Lohri gift of OPS to cost 800-900 crore to Himachal economy

The newly elected Congress government of Himachal Pradesh had pledged to reinstate the so-called ‘Old Pension Scheme,’ a popular demand that would affect 1.36 lakh government employees. The move of the Sukhu government is aimed at garnering political benefits for the Congress in the upcoming elections, as it will bring the beneficiaries closer to the dooming fate of the ‘grand old party’ for the 2024 Lok Sabha polls.

Chief Minister Sukhu has optimistically supported the OPS and said, “The state government has decided to implement OPS from the point of view of social security and humanity. Affordability of OPS expenditure will be achieved through financial discipline and cutting down on expenses, and the government believes that there is no such thing that cannot be done.”

However, despite this optimism, the so-called “Lohri gift” of the Sukhu government will cost the state another Rs. 800 to Rs. 900 crore, which would be met by hiking the value-added tax, or VAT, on diesel by Rs. 3 per liter. The fallacy of the cabinet decision can be highlighted by this very move by the government, which has overburdened the state economy with such mammoth expenditures without creating appropriate fundraising mechanisms. The move can be said to benefit a few at the expense of the majority of the citizenry.

The decision of the Himachal government has received sharp criticism from the opposition party BJP, which has claimed that the decision to increase the value added tax (VAT) on diesel from six percent to 9.96 percent per litre to generate funds for the OPS would adversely affect the economy of the state and would be detrimental to the interests of the common man in the state.

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Fallacies of the Old Pension Scheme

The government employees who joined government service after January 1, 2004, were excluded from the pension benefits of the old pension scheme. The OPS was discontinued by the BJP-led NDA government in December 2003, and the new NPS came into effect on April 1, 2004.

Ever since, the refurbished policy has been subject to widespread criticism as it took away the sense of social security of the government employees who joined thereafter. However, the recent political discourse has revisited the fierce debate over the new versus old pension scheme, as it has become a new political battleground between anti-BJP states and the BJP-ruled Center.

The new pension scheme that was an outcome of the ‘India Shining’ visions of the late Prime Minister Atal Bihari Vajpayee was aimed at reforming the archaic old pension policy of the post-Independence era, which had no explicit fund-raising mechanism.

As a result, the national exchequer was overburdened with an ever-increasing liability on the government due to a lack of corpus. Thus, to overshadow the lacuna of the old policy, the NDA government in 2004 introduced a new national pension scheme that required government officials to contribute a part of their salary for retirement benefits.

Under the new NPS, the government and employees had to contribute 10 and 14 percent of the salary, respectively, towards a pension fund that would be invested in the market until maturity. Evidently, until February 28, 2022, more than 50 lakh state government employees were covered by the NPS, while more than 22 lakh central government employees were enrolled as beneficiaries.

On the contrary, under the old system, the employees with 20 years of service used to get 50 percent of their last drawn salary as pension, thus making it evident on the part of the government to come up with a more economically feasible solution in the form of a new pension policy.

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Political vendetta by non-BJP ruling states

The anti-BJP parties are adamantly targeting the BJP by flaunting the reinstatement of the old pension policy, which has disastrous economic ramifications for the nation. India, which is on the track of growth despite global sloppiness, should not be made a victim of political vendetta by bringing back archaic policies of the past to target the ruling regime at the centre.

Further, it is quite evident that the anti-BJP opposition parties ran out of issues to target PM Modi, and as a consequence, they have resorted to partisan politics of overburdening the economy for electoral gains.

Further, the non-BJP-ruling states that have reinstated the old pension scheme are exerting pressure on the Center to reimburse the contributions of their employees, collected under the NPS. Consequently, the political infighting has been putting in jeopardy the social security needs of the people in addition to creating an atmosphere of uncertainty over the policy continuum of the existing policy.

As per recent reports, the state governments of Rajasthan, Chhattisgarh, and Jharkhand have sent proposals to the central government/PFRDA to return the accumulated corpus of subscribers under the NPS to their respective state governments.

On which, the Minister of State, Dr. Karad has informed the Parliament that PFRDA has informed the states there is no such provision for refund of NPS corpus to state governments under relevant regulations. He opined that, “there is no provision under Pension Fund Regulatory and Development Authority Act, 2013 read along with PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, and other relevant Regulations…”

That is to say, the stance of the Modi government is not against the interests of the government servants, but in the name of social security to a few, the government cannot jeopardize the interests of the majority that would be subjected to the burden of such unfounded and unjustified archaic policy.