Congress’s loss in 3 states confirms Old Pension Scheme was never a vote catcher

The BJP’s victory in the Hindi heartland appears to have vindicated its decision not to include OPS as a pre-poll promise. This could also give the central government more leeway to review the NPS, an exercise that is under way.

The OPS guarantees a fixed pension equivalent to 50 percent of a government employee's last drawn salary without any contribution from them. The NPS, introduced in 2004, requires employees to contribute 10 percent of their basic salary and the government 14 percent, with the eventual pension payable contingent on market returns of the funds invested.

Four states including Himachal Pradesh have rolled out OPS in some form or the other, while Karnataka has announced its intent to do so. The Congress promised to implement it in Madhya Pradesh if voted to power. In the case of Chhattisgarh and Rajasthan, it reiterated the commitment to ensure its proper implementation.

After the Congress won the assembly election in Himachal Pradesh last year, it was speculated that the assurance of OPS had paved the way for the party’s victory, given the high proportion of government employees in the state.

The narrative around the efficacy of OPS to sway electoral mandates grew so strong that media reports earlier in the year stated that the BJP was facing a strong push by its own leaders and allies in certain poll-bound states to bring back the scheme. Chakravarty, the head of the Congress party’s data analytics department, disagreed.

“It is also completely bunkum to say Congress won Himachal Pradesh mainly due to OPS. There is no empirical evidence to suggest that. In fact, I would wager that had the Congress not promised OPS in Himachal, it may still have won the election,” he said.

The latest round of state elections could very well set the record straight on OPS once and for all.

“OPS, caste census, so-called right to health, and urban job guarantee scheme have all bitten dust. The voter is way smarter than that and demands a corruption-free government that would promote law and order and real economic progress,” Arvind Panagariya, former vice chairman of NITI Aayog, said on X (formerly Twitter) on December 3.

Chakravarty went a step ahead to say that the push to implement OPS is a result of a bunch of bureaucrats close to the political leadership looking to make gains and the Congress wins in Karnataka and Telangana prove its ineffectiveness in influencing election mandates.

Fiscal concerns
The OPS versus NPS issue in India’s electoral discourse not only led to debates among the political leadership, it also triggered conversations around the fiscal impact of such a move.

A return to OPS when the fiscal health of states was bouncing back as the economic ramifications of the pandemic receded was largely seen as financially irresponsible. While OPS could lead to a lower outgo for the states in the short term, future outlays would be massive because of the indexation of pensions to current salaries.

In September, India’s central bank said in its monthly bulletin that a shift by state governments to OPS from NPS would be "fiscally unsustainable" and a "major step backwards." The article from the RBI bulletin warned that while reverting to OPS may look lucrative for states in the short run, the future burden of the scheme would eclipse these gains.

The concerns assume significance when the budgeted debt-GDP ratio of states remains significantly higher than the 20 percent recommended by the FRBM Review Committee, 2018.

In Rajasthan, Madhya Pradesh and Chhattisgarh alone there were roughly around 13 lakh NPS subscribers as on November 30, 2022, as per Pension Fund Regulatory and Development Authority (PFRDA) data.

Advantage Centre
A committee led by finance secretary TV Somanathan is reviewing the NPS in the context of issues plaguing government employee pensions. The move was largely seen as triggered by the decision of certain states to revert to OPS.

A finance ministry official told Moneycontrol earlier that demand for OPS is from select groups and does not impact the larger public. Chakravarty seemed to echo the point when he said OPS is a grossly unfair system.

“Why should 95 percent of the people pay higher taxes to fund 5 percent of privileged government employees' pensions after 30 years of service?” he asked.

With the general elections around the corner, the recent state-level developments may give the Centre more flexibility to protect the inherent nature of the NPS, given the fiscal concerns associated with reverting to the old system.

“The results bolster near-certainty of BJP’s return in 2024 elections. While we think that fiscal prudence for the NDA government has been a non-negotiable issue, with BJP now on stronger footing, any market fears of Government of India deviating from fiscal discipline should also now be pacified,” according to a December 4 note by Emkay Global, co-authored by lead economist Madhavi Arora.

For BJP spokesperson Gopal Krishna Agarwal, the matter is not that simple. Whether it was the promise of OPS or farm loan waivers, the opposition’s lack of delivery led to their rout in the Hindi Heartland, he said.

People want welfare, but if you promise without the intent to deliver, it never works. The Congress has been promising the moon and not delivering, be it Himachal Pradesh or Karnataka, Agarwal told Moneycontrol on December 5.

On the issue of OPS, Agarwal said, “The BJP government at the Centre has set up a committee, it will look into the various aspects and a call will be taken on this matter once the panel submits their report.” He added that any measure should be announced after duly considering its fiscal viability.

While Agarwal refused to comment on whether the newly elected BJP governments in the states would reconsider the move by the previous regimes to roll out OPS, Chakravarty was clear that the Congress should rethink its strategy of including OPS as a key guarantee in poll-bound states.