Govt’s implicit pension debt Rs 1.7 trillion

The first claim on tax revenue is of interest payments and repayment of debt, and the government spends on public goods only after it has met these liabilities. Similarly, pension liabilities are promises made by the government committing its future taxes to make pension payments.

These pension liabilities are, therefore, an indication of the tax burden that will have to be borne in the future.

Government liabilities under the implicit pension debt have not been estimated until now primarily because of the lack of data. The current exercise by IIEF and CMIE has been made possible by the Indian Retirement Earnings and Savings (IRES) survey which captured primary information on central and state government employees.

While the actual pension liability of the Government of India also includes pensions of defence personnel and of current pensioners, data for these is not yet available. However, the study captures pension promises made to employees of autonomous bodies whose pensions ultimately come out of the Consolidated Fund of India, even though they show up as grants to these bodies in the budget.

The pension liability of the central government has been estimated for the relevant 5,285,523 employees between the ages of 21 and 60 under very conservative estimates such as a 2 per cent growth in government salaries, and not assuming inflation indexing of the pensions. The net present value of the GoI central employees is estimated at Rs 406,092 crore (at 2004 prices).

One crucial assumption that the study makes is that from January 1, 2005, all fresh civil servants are under the New Pension System and do not add to any further pension liability for the government.

If, however, the government decides not to go ahead with the New Pension Scheme, which is plausible given the opposition to it by the Left parties, this would mean that the pension liabilities of the government would keep on rising. The debt GDP ratio of GoI would become unsustainable.

For state governments if they draw their pension from the government, the number of employees between age 21 and 60 is 18,438,515. This gives a pension liability of Rs 1,329,435 crore. The total thus adds up to 55.88 per cent of GDP.