Celebrating a truly retrograde decision

It is ironic that a truly retrograde decision, which, we fear, several other states will feel obligated to ape, is being hailed in full-page advertisements by the Rajasthan Government. Front pages of major dailies in the national capital the other day blared out loud what Chief Minister Ashok Gehlot, with his beaming visage splashed on the top left-hand corner of the ad, “a historic, humane decision --- Rajasthan implements old pensions scheme.” Not only has the reform process come to an abrupt standstill, but states like Rajasthan are now celebrating the junking of one of the most salutary reforms done by the previous central government. This is a pernicious reversal of the economic reforms and is bound to play havoc with the finances of state governments. The states will have very little left for productive infrastructure development if the combined bill for salaries and pensions keeps on growing without a corresponding increase in tax revenues. Pandering to the small but organised section of serving and retired government employees while cutting back on productive expenditure on vital infrastructure may pay a political dividend in the short term. But in the long run, it is going to bankrupt the state treasuries. According to a reliable estimate, the pension liability of state governments had grown at a compound rate of 34 per cent in the last 12 years till 2021-22. Outgo on pensions alone accounted for 30 per cent of the tax revenue of states and over 13 per cent of their total revenue receipts. These are not small amounts. By reverting to the OPS, Gehlot has only guaranteed that the share of outgo on pensions in Rajasthan would keep on rising progressively until the state is left with very little after paying the salaries of active employees for education, healthcare, public roads, and other essential infrastructure.

As we had argued in this space earlier, several states in the US faced near-bankruptcy due to the old pension commitments, having to raise funds from financial institutions on interest. Indeed, unable to pay pensions to teachers, several counties in California had declared bankruptcy. Whether in the US or here in India, the pension burden is compounded immensely thanks to the welcome rise in life expectancy. People are living ten, twenty years longer due to better healthcare, food, awareness, etc. A particular county in California, it seems, boasted of a hundred centenarians who had retired as teachers aeons ago but were still entitled to their pensions. In fact, in order to ensure that the states did not bankrupt themselves by paying pensions, the new system was implemented from 2004-2005. Its major thrust was to make the employees in service stakeholders in their post-retirement benefit package. Such a contributory system enabled an employee to access a lump sum on retirement. Also, given that on an average, the working span of government employees lasts between 30-35 years, no one would have actually experienced the merits or demerits of the NPS. Clearly, vested interests have spread fears about the NPS. When it was passed by Parliament, the NPS had the tacit support of the Congress Party. Gehlot should also consider that for a full decade after Vajpayee, his party had led the coalition at the Centre under Manmohan Singh. If the NPS was really anti-employee it is a surprise the UPA Government did not annul the NPS. In fact, along with the exit policy, reform of the pension scheme was one of the major items on Singh’s reform agenda. However, it is futile to hope that economic reform advocates such as P. Chidambaram would now intervene to stop the party governments from moving back the clock.

Indeed, there is now a genuine fear that aside from Rajasthan and Chhattisgarh, both ruled by the Congress Party, other non-BJP States too, might reverse the pension reform and go back to the OPS. It will be a setback for the pragmatic management of state finances. Ruling parties invariably resort to shortcuts for retaining power. But we had hoped that while it was one thing not to move forward further on economic reforms, to be so impervious to the larger public good as to actually undo a major reform was unimaginable. But clearly, in his single-minded pursuit of power, Gehlot has indeed rolled back a major economic reform. Future governments will have to pay the price for his folly. Even the retirees in Rajasthan may come to rue the day sometime in the near future when the coffers of the state government are empty and unable to service their large pension bills.