Himachal’s OPS promise: How the numbers stack up

What did the CM announce in the first cabinet meeting?

Last week, Chief Minister Sukhvinder Sukhu chaired the first cabinet meeting with OPS as the key agenda. The CM announced that the scheme will be implemented for the 13.36 lakh government employees. The government stressed the fact that the OPS is being brought back as part of a social security scheme.

What is the difference between NPS and OPS?

The New Pension Scheme is essentially a contributory scheme in which the employees deposit 10% of their basic salary plus dearness allowance. The government contributes 14% to the corpus. In OPS, the employee is given a pension that amounts to 50% of the last drawn salary.

The key component of OPS is the duration of service, which is considered a defined pension. This is one of the main reasons why government employees in Himachal made OPS a poll issue. The BJP did not commit to OPS stating that they had formed a committee to make a recommendation for OPS.

How does the HP government plan to implement it?

The Chief Minister stated that the government will spend Rs 800-900 crore in the first year of OPS. The amount is likely to increase in the coming year. The Central government has nearly Rs 8,000 crore share of NPS employees, the CM said.

The CM also stressed ‘financial discipline’ and cutting down on expenses in order to fulfil the financial obligation.

The latest State Finances Audit Report of Himachal Pradesh for the year ending March 31, 2021, shows that the committed expenditure of the state — 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 the revenue receipts, the committed expenditure has increased from 65.31 per cent to 67.19 per cent over the last five years. The committed expenditure has been hovering around 67 per cent of the total revenue expenditure of the government during the last five years (2016-21).

This eventually shows that the government will have to make a budgetary allocation keeping in mind that less revenue is available for development activities.

What is the financial viability of OPS for the Himachal government?

The Chief Minister slammed the BJP government for leaving behind a debt of Rs 75,000 crore. The government said that due to the wasteful expenditure of the BJP, there are financial liabilities of Rs 4,430 crore as salary arrears, Rs 5,526 crore as pension arrears and about Rs 1,000 crore DA for salary and pensioners.

In the recently concluded Vidhan Sabha session, the government also approved the raising of the borrowing limit under the Fiscal Management Act.

The previous BJP government had presented a Rs 51,365 crore budget in which 1/5th had been earmarked for loan interest and repayments itself. The budget session will be held next month and will be factoring in the rise of debt and pension costs.

What are the implications of implementing OPS?

The Reserve Bank of India (RBI) recently cautioned states against reverting to the old pension scheme (OPS), stating that it would add to the fiscal burden of states in the coming years. The central bank said the OPS may lead to the accumulation of liabilities, which can become a major risk.

The OPS is largely a political decision given the large number of government employees in states. It is natural that the finances for OPS will be allocated through expenditure cuts or through different means of revenue generation.

The final notification for the OPS and the next month’s budget will shed a light on the Himachal government’s approach towards fulfilling the financial mandate for the pension scheme.