By Gautam Mukherjee

When the Vajpayee administration introduced the new pension system (NPS) for Central and other government employees commencing on 1 January 2004, the motivation was to ensure long-term viability. It is mandatory for the Central government employees and a few other entities. Much greater longevity had complicated the calculations on the old pension system (OPS).

The threat of a bankrupt state defaulting on pensions, such as West Bengal, Kerala or Punjab today, was already beginning to loom large in 2003 when the NPS was formulated.

Punjab’s pension liability, as its AAP government plans to go back to the OPS system of 18 years ago, is unsustainable. In 2022-23, it is estimated at Rs 15,146 crore, or one-third of state revenues of just Rs 45,588 crore for the year. Other commitments such as salary and interest on borrowings takes it to almost 50 percent over state revenues.

West Bengal, which has never adopted the NPS, says things are much better for the state’s finances after the implementation of Value Added Tax (VAT) and that its pension bill is only about 10 percent of state revenues. Others are sceptical of the state’s calculations because it is one of the most indebted states of the Indian union.

The OPS was already eating up 65 percent of India’s GDP basis 2006-07, on a forward projected basis. The calculation is called implicit pension debt (IPD), the net present value of future pension commitments. A study released by Gautam Bharadwaj co-founder and director of pinBox Solutions that has designed pension systems for Asia, Africa, Latin America, the Caribbean regions, and first SEBI Chairman Surendra Dave put up the warning balloon in support of NPS.

The attraction for the OPS, the demand for which has resurfaced in BJP-ruled states (Himachal Pradesh, Madhya Pradesh), as much as in Opposition and Congress-ruled states (Chhattisgarh, Jharkhand and Rajasthan have already reverted to OPS), is that it pays out a sure sum.

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