Good politics may not necessarily mean sound economics. Promising restoration of the Old Pension Scheme (OPS) as an electoral gambit is one thing, but once the gambit has worked, implementing its lofty targets on the ground is quite another matter.
There is no doubt that the Congress party’s promise to restore the OPS has turned the election mandate decisively in its favour in Himachal Pradesh, where the government remains the largest employer.
The burden of paying OPS becomes particularly precarious in a state that is close to bankruptcy. Himachal is under a debt burden of over Rs 70,000 crore and the new government will find it difficult to raise Rs 16,000 crore for paying the arrears to its employees.
“It is a huge challenge. No one knows where the money will come from. But compared to BJP, which did not even talk of pensions, the promise by Congress is too good to be ignored,” Shimla-based academic Shashi Kant Sharma told Moneycontrol.
The focus of the new Congress government will be on raising funds to pay salaries to employees and maintain the pace of development works.
So, how will the new government go about doing it?
Consider the following. According to data from the latest State Finances Audit Report of Himachal Pradesh for the year ended March 31, 2021, the state’s committed expenditure — which comprises interest payments, expenditure on salaries and wages, and pensions — had increased from Rs 17,154.75 crore in 2016-17 to Rs 22,464.51 crore in 2020-21.
As a percentage of revenue receipts, the committed expenditure has increased from 65.31 percent to 67.19 percent over the last five years. The committed expenditure has been hovering around 67 percent of the total revenue expenditure of the government during the last five years (2016-21).
The rising amount of committed expenditure means that a lower revenue is available with the state government for development expenditure. For instance, during 2020-21, only about one-third of the state’s total revenue receipts were available for the developmental outlay.
Only about a fourth of Himachal’s revenues comes from its Own Tax Revenues (OTR). During 2020-21, out of the total revenue of Rs 33,438 crore, only Rs 8,083 crore came from the state’s OTR.
In the Himalayan state, the growth in OTR, which comprises taxes like state GST, state excise, stamp duty, registration fees, land revenue, and taxes on vehicles, goods, and passengers, has remained very low in recent years.
Figures from the Comptroller and Auditor General of India (CAG) show that Himachal Pradesh’s OTR increased by 14.84 percent to Rs 8,083 crore in 2020-21 from Rs 7,039 crore in 2016-17.
In the year preceding the pandemic – which crippled the state’s tourism-led economy (2019-20) – Himachal’s own taxes as a ratio of total revenue receipts stood at just 24.80 percent, which was lower than the all-state average ratio of states’ own taxes to total receipts (38.04 percent) in that year.
Employees, particularly those who have superannuated, are thrilled. “The Old Pension Scheme will benefit retired employees in a big way,” Mohan Singh, a retired irrigation department official, told Moneycontrol.
More than 2.25 lakh individuals are employed with the Himachal Pradesh government, of which 1.90 lakh are pensioners. This is a huge number for a small state like Himachal, where the total size of the electorate is not more than 55 lakh.
Employee associations have protested against the new scheme in Shimla, Mandi, Kangra, and Solan, particularly in the run-up to the elections.
While no one is willing to talk on behalf of Congress, saying it is too early, restoring the OPS is a tactic that may work. After its success in Himachal, the Congress is keen to broaden the agenda. Several states will follow suit.
Chhattisgarh’s Chief Minister, Bhupesh Baghel, who also campaigned in Himachal, has already promised that Congress is keen to go ahead with its ‘pro-people’ policy.
Recently, the Punjab government said it was considering reverting to OPS, for its employees. If the proposal goes through, Punjab will be the fourth state to have reverted to the OPS. States like Rajasthan, Chhattisgarh, and Jharkhand have already implemented the OPS.
With Arvind Kejriwal too, toying with the idea of restoring pensions, a significant piece of financial reform could be under threat.
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