The striking employees of the government in Maharashtra have called off their week-long agitation following some ‘concrete’ assurances by chief minister Eknath Shinde. Mainly, the assurance rests on two points. Firstly, certain benefits of the Old Pension Scheme (OPS) will be incorporated in the New Pension Scheme (NPS) and secondly, security for the post-retirement life will be provided. How this will be done will become clear after an expert committee submits its reports to the government. Whatever the revised package, it will become a liability for the government in the long run. Taking this possibility into account, the Union government had decided to implement NPS for its employees who were recruited after 2004. It will be difficult for any state government to overlook this factor. How the Maharashtra government handles this thorny issue will become clear only after the committee submits its report.
Traditionally, the state and Central government retired employees are given a monthly pension, as lifetime income security from the time of retirement until death. After the death of a retired employee, dependent family members are also entitled to receive partial payment of the pension. Under OPS, the entitled employees receive half of their last drawn emoluments as pension. There are also some more benefits like of revising dearness allowance every six months and the provision of the general provident fund (GPF). The pension is pre-calculated. This means that no deduction is done during the employment period. It is fully funded by the government.
OPS was replaced with effect from 1 January 2004 by the Union government. The Vajpayee government introduced a National Pension Scheme (NPS) in 2003 in place of OPS. It was applicable to all new recruits of the Central government. Military personnel were excluded from NPS, however. NPS has two components. While employees contribute 10 percent of their salary, the government’s contribution is 14 percent.
After retirement, employees covered by NPS can withdraw 60 percent of their pension amount lump sum. The balance can be used for purchasing an annuity, thus assuring them of a source of regular income. The object of NPS is to control the rising fiscal burden of the government by getting rid of the mounting pension liability.
As continuation of OPS started becoming unsustainable for the government owing to the rising life expectancy and the swelling government pension package, NPS was brought in as an option to become financially sustainable by cutting down the liabilities. On the other hand, OPS guaranteed a fixed pension amount upon retirement. This assurance is taken away by the government, the employees feel as NPS is a scheme dependent upon market forces as the pension quantum is calculated by the total contribution and how market behaves. The major point of dispute is that under OPS, the employees need not contribute while under NPS, their contribution of 10 percent of salary is mandatory. But a positive feature of NPS is that the employees can continue their pension account even after changing jobs but under OPS, only those holding a government job are eligible.
Demanding the restoration of OPS, nearly 17 lakh employees of the Maharashtra government were on strike since 14 March. They work in government hospitals, aided schools or colleges as well as in civic bodies, Zilla Parishads and various government boards, corporations and undertakings. Several employee unions were masterminding the strike, which is mercifully over.
The root cause of the strike is the comparison between NPS and OPS. After Maharashtra, the agitation is likely to spread to some other states. In Haryana, the state government employees had lodged their protest against NPS. Madhya Pradesh employees have decided to protest on 14 April. A confederation of unions of the Central government employees have already demanded that OPS should be restored for them, calling NPS as a disaster for the retired employees. The Modi government is yet to respond to the demand, which is backed by their grievance that the NPS employees are getting only a meagre pension despite contributing 10 percent of their salary every month for their entire service. The NPS does not provide any relief against the rising prices unlike OPS, which has a provision to mitigate it to some extent, the unions have pointed out.
The states which have reintroduced OPS are Rajasthan, Chhattisgarh, Punjab, Himachal Pradesh and Jharkhand. Expert committees have been set up in states like Assam, Kerala, and Andhra Pradesh. The government employees in Karnataka recently withdrew their indefinite strike after the government announced a 17 percent increase in their basic salary. Incidentally, the state is going in for assembly elections later this year. But Maharashtra deputy chief minister Devendra Fadnavis had warned that returning to OPS will create unbearable burden in the long run for the states doing so. His cautious approach was frowned upon by the opposition parties, debunking his warning. They conveniently forgot that they had implemented NPS when they were in power.
The issue has been complicated further since the Union government issued an order a month ago, permitting a certain class of employees to opt for OPS. The employees recruited in the posts advertised or notified before 22 December 2003 will be eligible to go for OPS, the ministry of personnel has announced. This provision is as per the Central Civil Services (Pension) Rules, 1972, revised in 2021. The deadline to opt for OPS by eligible government employees is 31 August 2023.
Reserve Bank of India (RBI) cautioned against the restoration of OPS as several states opted out for the old scheme. RBI has warned the government in unambiguous terms that restoring OPS will be a major risk for fiscal management. OPS will increase government liabilities owing to the burden of employees’ pensions on state exchequers, risking their financial security in the long run. The warning has been spelt out in a report called ‘State Finances : A Study of Budgets 2022-23’.
As far as Maharashtra is concerned, the warning by Fadnavis aggravated the atmosphere. He said that reverting to OPS would amount to passing the financial burden onto the next governments. Salaries, wages and pensions already account for 58 per cent of the state’s annual expenditure and will be increasing to 62 per cent. By the next financial year, it will be 68 per cent, he explained. In 2030, over 2.5 lakh state employees will retire by then, according to him.
An expert in public finances, Fadnavis outlined the possible scenario. If the pension amount is kept in a bank savings account, one can get a maximum of 4 per cent interest. However, India being a developing country, the rate of national inflation will remain over 7 per cent. In other words, a bank deposit will not be viable. Against this, high returns can be possible only in the capital market. Over the last five years, mutual funds have given 11 per cent returns on investments. Hence, the employees people should not be worried about their contributions going into these markets, he tried to reassure them, but to no avail.
As Maharashtra, too, is scheduled to go in for elections in 2024, the state government will have to be extremely careful while dealing with the sensitive OPS versus NPS issue. Statesmanship versus diplomacy will play a major role in this balancing act.
