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This is an archive article published on November 21, 2022

The cost of switching back to Old Pension Scheme: Where things stand

A comparison of RBI data on the growth of pension bills and the ratio of pensions to own tax revenues shows that among states that have either completed or are considering a switch to the Old Pension Scheme, Himachal Pradesh is the worst off, and Gujarat is doing the best.

Gujarat Rajya Karmachari Mahamandal protest to retain Old Pension Scheme in 2021. (Express file photo by Bhupendra Rana)

The Reserve Bank of India (RBI) released its latest 2022 Handbook of Statistics on Indian States on Saturday (November 19). What do the data on employees’ pensions say about the ability of (i) states that have switched back to the Old Pension Scheme (OPS), and (ii) states where Assembly polls are currently ongoing, to meet pension commitments out of their own tax revenues?

Rajasthan and Chhattisgarh, which are ruled by the Congress, and Punjab, which is ruled by the Aam Aadmi Party (AAP), have reverted to the OPS. In Himachal Pradesh and Gujarat, where the election process is ongoing, the Congress and AAP have promised a return to the OPS.

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HIMACHAL PRADESH

Himachal Pradesh is the worst off among Indian states. The pensions burden, which consumed almost half the state’s own tax revenues in 2004-05, has ballooned to eat away more than three-fourths of its own tax revenues (OTR)in 2020-21.

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To top this, the state’s employee strength has jumped more than 2.5 times to 62,844 in 2018-19 from 25,393 in 2004-05. This shows that the state’s pension bill is unlikely to come down anytime soon. In fact, in some years, it will not generate enough tax revenues to pay even its employees’ pensions entirely.

Pensions bill

2004-05: Rs 591 crore

2021-22: Rs 7,082 crore

Increase: 11.98 times

Own tax revenues (OTR)

2004-05: Rs 1,252 crore

2021-22: Rs 9,282 crore

Increase: 7.41 times

Ratio of pensions to OTR

2004-05: 47.20%

2021-22: 76.29%

Number of employees

2008-09: 25,393

2018-19: 62,844

Increase: 147.48%

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PUNJAB

The state’s pension liabilities have increased over 7 times in the last 16 years. Its tax revenues haven’t increased at a similar pace. Its pension allocation now accounts for almost 30 per cent of its own taxes. With a sharp increase of almost 30 per cent in employee strength between 2008-09 and 2018-19, things will not be smooth for the state in the coming decades.

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Pensions bill

2004-05: Rs 1,514 crore

2021-22: Rs 11,167 crore

Increase: 7.37 times

OTR

2004-05: Rs 6,945 crore

2021-22: Rs 37,434 crore

Increase: 5.39 times

Pensions-OTR ratio

2004-05: 21.79%

2021-22: 29.83%

Number of employees

2008-09: 1,05,101

2018-19: 1,36,154

Increase: 29.54%

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RAJASTHAN

Rajasthan under Congress rule and Chief Minister Ashok Gehlot was the first state to switch to the OPS. Its pension bill has jumped almost 16 times; and took away 28% of its own tax revenues in 2020-21 compared with just 19% in 2004-05. The state’s employee strength too has jumped 70% between 2008-09 and 2018-19, suggesting an ever-increasing pension bill in the decades to come.

Pensions bill

2004-05: Rs 1,626 crore

2021-22: Rs 25,473 crore

Increase: 15.66 times

OTR

2004-05: Rs 8,415 crore

2021-22: Rs 90,050 crore

Increase: 10.70 times.

Pensions-OTR ratio

2004-05: 19.32%

2020-21: 28.28%

Number of employees

2008-09: 73,031

2018-19: 1,24,240

Increase: 70.11%

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CHHATTISGARH

Over the last 16 years, Chhattisgarh’s pension bill has jumped over 12 times, but its Own Tax Revenues haven’t increased commensurately. It has risen by just 7.97 times. Hence, pension allocation, which took away 16.5 per cent of its OTR in 2004-05, now takes away 25.66 per cent.

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Its employee strength has, however, marginally come down to 40,497 in 2018-19 from 42,895 in 2008-09.

Pensions bill

2004-05: Rs 534 crore

2021-22: Rs 6,609 crore

Increase: 12.37 times

OTR

2004-05: Rs 3,228 crore

2021-22: Rs 25,750 crore

Increase: 7.97 times.

Pensions-OTR ratio

2004-05: 16.5%

2020-21: 25.66%

Number of employees

2010-11: 42,895

2018-19: 40,497

Decrease: 5.59%

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GUJARAT

The state’s employee strength has jumped by almost 1 lakh persons between 2008-09 and 2018-19. But its OTR growth in the last 16 years has more or less kept pace with rising pension liabilities. Not surprising then, that pension accounts for just 15% of its tax revenues in 2021-22, similar to what it was in 2004-05.

Pensions bill

2004-05: Rs 1,892 crore

2021-22: Rs 16,843 crore

Increase: 8.9 times

OTR

2004-05: Rs 12,958 crore

2021-22: Rs 1,11,693 crore

Increase: 8.61 times

Pensions-OTR ratio

2004-05: 14.6%

2020-21: 15.07%

Number of employees

2008-09: 2,48,182

2018-19: 4,47,912

Increase: 80.47%

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