Friday, Oct 07, 2022

Debate the bill

It's time to reorder the defence pension bill, include it in the official defence budget.

There is an urgent need to debate the rising defence pension bill. In 2004, a debate over the mounting civilian pension bill led to the New Pension System for government employees, where pension contributions were defined and not benefits. But the armed forces were excluded from that system. Now, a beginning can be made by including pensions in the official defence budget.

In 1985, when Rajiv Gandhi was prime minister, defence pensions were removed from India’s overall defence expenditure, presumably to assuage global concerns about India’s defence bill, which was linked to its regional ambitions. The defence expenditure was then 3.6 per cent of India’s GDP. When that ratio has now come down to 1.75 per cent, the lowest in the post-1962 era, defence pensions still continue to be excluded from the defence bill. Over the years, defence pensions have grown exponentially — from Rs 1,670 crore in 1990-91 to Rs 15,244 crore in 2007-08 to Rs 50,000 crore in the current year — at a much faster pace than the defence budget. Next year, defence pensions are budgeted at Rs 54,500 crore, placed outside the official defence budget of Rs 2,46,727 crore. The pension bill is likely to rise by another Rs 8,400 crore with the implementation of the One Rank One Pension (OROP) scheme for military veterans. Every successive Pay Commission has raised the pension burden exponentially and the Seventh Pay Commission, coupled with the effect of OROP, will hit the exchequer even harder.

Approximately 60,000 soldiers retire from the 1.3 million-strong armed forces every year but early recruitment and retirement age, coupled with increased life expectancy, means that military veterans get pensions for a longer period than their civilian counterparts. Thus India now has 1.7 defence pensioners on its rolls for every serving soldier, compared to civilian employees where the ratio is 0.56 pensioners per employee, and defence pensions will soon exceed defence salaries. Even if military veterans and soldiers can’t be moved to a New Pension System, there is a need to look at other measures, such as reducing the minimum military service period, pushing for early retirement with lateral absorption schemes and identifying a new model of defence pensions for new recruits. These are desirable not only on the grounds of fiscal prudence, but also to keep the military lean and young.

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First published on: 09-03-2015 at 12:00:36 am
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