Disastrous economy! Punjab plans to reintroduce old pension scheme

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Punjab CM Bhagwant Mann has said his government is considering reinstating the old Pension Scheme (OPS) for government employees.

The context: Mann tweeted that he had asked his “Chief Secretary to study the feasibility and modalities of its implementation”.

He added: “We are committed to the well-being of our employees.”

Come back? If OPS is reintroduced, Punjab will join Rajasthan, Jharkhand and Chhattisgarh in the list of states that have returned to OPS.

  • As elections approach, the demand for OPS is also increasing in states like Himachal Pradesh and Gujarat.

  • Demanding the implementation of OPS, thousands of Gujarat government employees recently staged a “mass casual leave” protest.

  • Both the AAP and Congress have promised to restore Gujarat’s old pension scheme if elected to power.

  • Congress said it would implement the old pension scheme in Himachal Pradesh within 10 days if elected to power.

Pension plans, old and new. Under OPS, the pension was 50% of the employee’s last salary and the full amount was paid by the government.

  • The scheme was abolished on 1 April 2004 and replaced by the National Pension Scheme (NPS).

  • Under the NPS, the employee contributes 10% of their salary to the pension fund, with the government contributing 14%.

  • The amount is then deposited with the Pension Funds Regulatory and Development Authority, protected by a lock-up period.

  • Any advance withdrawal can only take place with the prior authorization of the pension fund authorities.

What if OPS returns? Simply put, there will be short-term gains and long-term pain.

  • Removing the budgetary commitment – ​​of 14% of employees’ salaries – to the NPS will improve state finances in the short term.

  • Government employees will be happy because they will no longer be required to contribute 10 per cent to the plan. They will have extra money left over.

  • But here’s the thing: the economies of already struggling states will face a heavier fiscal burden later on, say from the mid-2030s.

  • This is when employees recruited in 2004 and later retire and their pensions must be paid.

  • There will be no way to reduce this stress. The pension – linked to wage commission bonuses and high cost allowances – will continue to increase over time.

Quotation. “Wow! Great decision. All employees across India want the old pension scheme reinstated,” tweeted Arvind Kejriwal, AAP Country Manager and CM Delhi, shortly after Mann’s tweet on PAHO.

Experts worry: The world is still emerging from the economic aftermath of the pandemic, despite the massive debt burden. In this context, the reintroduction of OPS is, politely speaking, financially irresponsible.

  • Government employees, a small portion of any state’s population, will walk away with the lion’s share.

  • The state will have less fiscal space for development spending, which is crucial for sustainable growth.

  • A fund’s rate of return depends on both the market rate of return and the time growth of contributions.

  • This means that if more states switch to the old pension system, the NPS rate of return will suffer, providing an additional economic argument for a change.

  • This will trigger a vicious circle of bad economy and bad results.

When you’re in a hole, stop digging. Sadly, this centuries-old wisdom is lost on the political leaders of Punjab.

  • The state is already exhausted. According to Mann, the state has a debt of over Rs 3 lakh crore.

  • Salaries and electricity subsidies are the two biggest burdens on the public treasury, amounting to more than Rs 50,000 crore.

  • Other liabilities include just over Rs 20,000 crore for interest payments and just over Rs 15,000 crore for pensions and retirement benefits.

  • Punjab also has to pay nearly Rs 28,000 crore for repayment of advances and loans, and Rs 20,000 crore for repayment of advances on ways and means.

PAA revdi Culture: Despite being aware of this catastrophic situation, the AAP has pledged thousands of crores of doles.

  • These include 300 units of free electricity per month for each household as well as free water plus Rs 1,000 per month for all women in the state.

  • Punjab CM asked PM Modi for a central grant of Rs 1 lakh crore in March to fund his giveaways. Although no such subsidy has been provided, the AAP government of Punjab has already started distributing free electricity.

At the end of the line : This is irresponsible populism.

  • The AAP condemns future generations to compromise on their development spending.

  • Why? Paying bills against promises once made for short-term gain and the benefit of few.

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