A poll promise common to Gujarat and Himachal Pradesh assembly elections is the one made by Congress, which wants to revert to the old pension scheme (OPS) for state government employees. The party’s set to form the HP government but will not be able to fulfil this promise. OPS represents a guaranteed pension linked to an employee’s last drawn salary. For a government, it represents an open-ended commitment that has to be fulfilled at all costs.
OPS also represents a committed claim which eats into other spending. Given its impracticality, most state governments, HP included, and GoI shifted new employees to the national pension system (NPS) 2004 onwards. NPS works on the lines of EPF, the employer pays a monthly contribution and the pension depends on the return on accumulated savings. Of late, some opposition-ruled states such as Punjab, Rajasthan and Chhattisgarh have promised to revert to OPS. It’s not legally possible. NPS accumulations can’t be transferred back to a common pool. Therefore, this promise is not implementable as other states have realised.
HP today sets aside about 18% of revenue expenditure towards pension, higher than the national average. Only 32% of its revenue expenditure is met by the state’s own revenue, which is on the lower side. If it wants to switch back to OPS for new recruits, it will be at the cost of reducing fiscal space for development spending. States should just stick to NPS.
This piece appeared as an editorial opinion in the print edition of The Times of India.
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