Many states are going to reinstate the Old Pension Scheme. The Reserve Bank said in its report that this will have a very bad impact on the financial health of the states.
Old Pension Scheme: Reserve Bank of India has warned about the Old Pension Scheme (OPS) related to Dearness Allowance (DA). He has said that implementing this will put a lot of pressure on the finances of the states and their capacity for development related expenses will be limited. The report released by the Reserve Bank on ‘Finances of the States: A Study of the Budget of 2023-24’ also states that the provision of goods and services, subsidies and transfers and guarantees that are detrimental to society and consumers will worsen their financial condition. Will reach critical condition.
These states implemented the Old Pension Scheme
It is noteworthy that the governments of Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh have informed the Central Government and the Pension Fund Regulatory and Development Authority (PFRDA) about the decision to implement the old pension scheme for their employees. The Finance Ministry has recently informed Parliament that these state governments have requested to refund the amount of contribution of their employees in the new pension scheme.
The financial condition of the states will worsen
The Central Bank’s report said that the implementation of the old pension scheme in some states and the report of some other states also moving in the same direction will put a heavy burden on the state’s finances and their ability to spend to accelerate economic growth. Capacity will be limited. “As per internal estimates, if all state governments replace the National Pension System (NPS) with the old pension system, the cumulative fiscal burden could be up to 4.5 times that of the NPS,” it said. The additional burden will reach 0.9 percent of annual GDP by 2060.
It’s like a step backwards.
The report says that this will increase the pension burden for retired people coming under the old pension system. The last batch of these people are likely to retire in the early 2040s. Therefore, they will receive pension under the old pension under OPS till the 2060s,” the RBI report says. “Thus, states reverting to the old pension would be a major step backwards,” the RBI report says. This step will reduce the benefits of past reforms and compromise the interests of future generations.
Bad condition of fiscal condition of states
The report said that some states have budgeted the fiscal deficit to exceed four per cent of GSDP (State Gross Domestic Product/GSDP) in 2023-24, while the all-India average is 3.1 per cent. Their debt level is also more than 35 percent of GSDP, while the all India average is 27.6 percent. “Any additional provision for socially disadvantageous goods and services, subsidies, transfers and guarantees will worsen their fiscal position and hamper the overall fiscal strength achieved over the last two years,” it said.
Focus should be on reducing revenue deficit
According to the report, the improvement in the state’s finances that took place in 2021-22 will continue in 2022-23. The states’ combined gross fiscal deficit (GFD) stood at 2.8 per cent of gross domestic product (GDP) – below the budget estimates for the second consecutive year. The main reason for this was the reduction in revenue deficit.
