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Old Pension Scheme | AAP’s myopic politics will burden Punjab’s long-term financial health

The Punjab government has many fires to fight on the economic front. It has a lot to do on the social infrastructure front. At this time to take on additional financial burden for political brownie points was avoidable

September 21, 2022 / 01:10 PM IST
Representative image. (Image: Moneycontrol)

Representative image. (Image: Moneycontrol)

There is a view that politicians must undergo a course on elementary economics before contesting elections, or assuming office. It may be a good idea to add mathematics to the curriculum as well. But to understand the financial mess that Punjab is in requires neither economics nor mathematics. It is simply a matter of myopic and opportunistic politics.

As per a ‘White Paper’ of the government, Punjab has a debt burden of Rs 2.85 lakh-crore. This is likely to grow to over Rs 3.37 lakh-crore by 2024-25, according to the CAG. The largest chunk of its state budget, over Rs 4,700 crore, is spent on servicing this debt. Add to this the additional commitments by the state towards 300 units of electricity free per month to every household as well as free water, plus Rs 1,000 every month to all women in the state, and one gets a picture of the ‘debt-trap’ that the state is caught in. No wonder, Chief Minister Bhagwant Mann has already asked the Centre for a Rs 1 lakh-crore assistance spread over two years to tide over its cash crunch.

But even with the Union government’s bailout it would at best be able to meet its immediate repayment obligations, but will not bring down the overall debt level in the absence of a concrete revenue enhancement plan.

The debate, however, is not about policy — which one may argue is the prerogative of an elected government — but one of timing, priorities, and fiscal prudence. All the three considerations are relevant in the context of the Mann government’s decision of reverting to the ‘Old Pension Scheme’ (OPS) for government employees in place of the National Pension Scheme (NPS) introduced in 2004.

The NPS envisages a contribution of 10 percent of salaries to a pension fund maintained by the Pension Fund Regulatory and Development Authority (PFRDA) with the government paying another 14 percent. The PFRDA invests the contribution in market securities to generate returns. The corpus is utilised for pension of retiring employees.


The OPS on the other hand pays out a flat 50 percent of the last drawn salary of employees entirely funded by the government without any contribution from the employees. The pension — linked with pay commission awards and dearness allowances — will keep rising with time. This will, of course, be music to the ears of government employees as they would get immediate relief of the 10 percent deduction of salaries. The government too can show some notional savings in its expenditure if it chooses not to provide for pension liabilities on an accrual basis. But, it will balloon its future financial obligations.

The decision is problematic on several counts as indicated earlier. First, is its timing. When the Aam Aadmi Party (AAP) government is struggling to balance its budget, this was a call that could have been deferred till it had greater visibility of its fiscal roadmap. Here it seems Mann has been guided more by the timing of the Gujarat elections and peer pressure rather than Punjab’s own needs. The Congress, whose space the AAP is trying to appropriate, has already implemented it in Chhattisgarh and Rajasthan, where it is ruling, and promised to introduce it in Gujarat and Himachal Pradesh if elected. Government employees in Gujarat had gone on ‘mass casual leave’ demanding restoration of the OPS. Implementing it in Punjab before Gujarat will augment the credibility of AAP’s poll promises in these states, and put the ruling Bharatiya Janata Party (BJP) on the back foot.

The second issue is one of priority. The OPS will benefit only government employees who constitute a small part of the state’s population. The Punjab government has many fires to fight on the economic front. Besides, going by its own electoral manifesto, it has a lot to do on the social infrastructure front — especially on health and education, where Punjab has been lagging. At this time to take on additional financial burden for political brownie points was avoidable.

The third consideration is one of fiscal prudence. Punjab is the first full state that AAP is ruling. This was a great opportunity for it to demonstrate its longer term vision, and governance abilities. Instead it has fallen for myopic wins that will hurt future generations.

But the biggest sufferer of this competitive populism will be India at large. It is unfortunate that politics is driving opposition parties to push India towards fiscal instability, when we are yet to fully recover from the economic overhang of COVID-19, and working tirelessly to navigate through the choppy waters of a turbulent global economy.

It seems that the opposition parties are happy to ignore lessons from the economic disasters in our neighbourhood in their quest for power.
Sandip Ghose is current affairs commentator and marketing professional. Views are personal and do not represent the stand of this publication.
first published: Sep 21, 2022 01:10 pm
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