The Reserve Bank of India (RBI) has warned about the Old Pension Scheme (OPS) linked to Dearness Allowance (DA). He has said that implementing this will put a lot of pressure on the finances of the states.
The Reserve Bank of India (RBI) has warned about the Old Pension Scheme (OPS) linked to Dearness Allowance (DA). He has said that its implementation will put a lot of pressure on the finances of the states and will limit their capacity for development related expenditure. Reserve Bank of India’s ‘Finances of the States: A Study of Budget 2023-24’ The report released on the subject also states that the provisions on goods and services, subsidies and transfers and guarantees that are harmful to society and consumers will lead to a critical financial situation.
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 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. It said, ‘According to internal estimates, if all state governments replace the National Pension System (NPS) with the old pension system, the cumulative fiscal burden could be as high as 4.5 times that of the NPS. The additional burden will reach 0.9 percent of annual GDP by 2060.
The report said that this will increase the pension burden for retirees covered 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 2060.’ The RBI report says, ‘Thus returning to the old pension of the states would be a big step backwards. This step will undermine the gains of past reforms and compromise the interests of future generations.’
The report said that some states have budgeted to exceed fiscal deficit by more than four per cent of GSDP (State Gross Domestic Product) in 2023-24.< a i=2>, while the all India average is 3.1 percent. Their debt level is also more than 35 per cent of GSDP, while the all India average is 27.6 per cent.
It said, ‘Any additional provision for socially harmful goods and services, subsidies, transfers and guarantees will worsen their fiscal position and hamper the overall fiscal consolidation achieved in the last two years. Will do.” According to the report, the improvement in state finances that took place in 2021-22 will continue in 2022-23. The combined gross fiscal deficit (GFD) of the states stood at 2.8 per cent of the gross domestic product (GDP) – below the budget estimates for the second consecutive year. The main reason for this was the reduction in revenue deficit.
