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This article was first published 2 years ago  » News » When Politics Scuttles Economic Reforms

When Politics Scuttles Economic Reforms

March 14, 2022 11:24 IST
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People like Manmohan Singh and P Chidambaram, who as finance minister had fully supported the NPS, refuse to exercise their moral and political influence to try and stop Ashok Gehlot and others hell-bent on wrecking the states' finances, notes Virendra Kapoor.

IMAGE: Rajasthan Chief Minister Ashok Gehlot presents the Budget for his state in the Rajasthan assembly in Jaipur, February 23, 2022. Photograph: ANI Photo

It seems there is no constituency for reforms in the country. Ordinary people do not care.

And politicians disdain reforms provided it wins them votes. The upshot is that reforms remain an orphan.

Remember even when the Narasimha Rao-Manmohan Singh duo under pressure from the IMF-World Bank opened up the economy a little bit in the early 1990s, they did so most hesitantly.

As Rao would write later, he was apprehensive about the reaction of his own Congress party, brought up as it was on a heady diet of Socialist rhetoric.

Reforms by stealth was the late PM's description of far-reaching changes in the economic sphere which for the first time since Independence triggered the 'animal spirits' of Indians and made billionaires of mid-level entrepreneurs a few years later.

To his credit, Vajpayee undertook divestment and a few other reforms in right earnest.

Of course, without making a song and dance about it, aware that the Opposition can always queer the pitch by painting him pro-business and anti-people.

To cut a long story short, one of the most far-reaching reforms which the Vajpayee government successfully pushed through concerned the pension of public servants. This was in 2003.

All government employees who joined service in 2004 were to be covered under the New Pension Scheme.

The Old Pension Scheme under which all retirees were assured of at least fifty percent of the last pay drawn in addition to the prevailing dearness allowance, as revised periodically to reflect the general price increases, was to be limited to all those who had joined the service till the end of 2003.

Besides, the pension increased as and when the equivalent pay-scales of employees in service were revised upwards on recommendations of the Pay Commission.

One of the main reasons for replacing the OPS with the NPS was the increasing pressure on the finances of the state and central governments.

The salary and pension bill of governments alone ate away a substantial chunk of their tax and non-tax revenues.

Indeed, governments without exception faced an ever-rising debt burden, with the pension and wage bill alone constituting nearly a quarter of their total revenue.

Indeed, in America, the world's richest country by some distance, several provincial governments stared at bankruptcy, unable to service the legal commitment to pay pension and other retirement benefits including healthcare and family-pensions.

Actually, it is a burden which the governments impose on future generations.

For example, several counties in California have gone bankrupt, unable to service the retirement benefits of the retiree-teachers.

Why have things come to this, here in India and in America and most probably in other countries too.

Reasons are not far to seek.

One, to begin with, governments began with smaller pay-rolls, but as time passed, and governments undertook more and more functions, the number of employees increased manifold.

Two, with better, and fully paid healthcare in case of government employees, people are living longer.

Life expectancy has increased substantially, thus prolonging the period during which retirees are entitled to draw pension and other benefits.

Then of course there is family pension which kicks in on the death of the retiree.

Last but not least, government revenues are limited, required to meet the ever-expanding expenditure of a modern state.

Under the circumstances, the NPS was devised as an equitable alternative, which sought to share the burden of retirement benefit mutually between the employees and the employer.

Under it, the employees contributed monthly to the pension fund with the government making a matching contribution.

The pooled funds were to be invested in specified government bonds or other schemes offering assured returns.

Instead of the OPS which guaranteed half of the last pay drawn coupled with dearness allowance, the quantum of pension under the NPS was to be variable, depending on the performance of the funds in which the pooled pensions funds were invested.

Anxiety over the actual returns in the pension fund was further fuelled by reckless propaganda by trade unions and opposition politicians which demanded reversion to the OPS.

With an eye on the assembly election next year, the Ashok Gehlot government in Rajasthan became the first to withdraw from the NPS and go back to the old pension scheme.

It was a retrograde step bound to be followed by more and more governments in order to appease the trade unions.

As Rajiv Mehrishi, a former Rajasthan cadre IAS officer who also served as the Comptroller and Auditor General of India, pointed out in a recent article, 'Rajasthan currently spends Rs 23,000 crore on pensions and Rs 60,293 crore on salaries and wages. This is 56 percent of its own tax and non-tax revenue... In other words, six percent of the families of serving and retired employees pre-empt 56 percent of state's revenues.'

Unfortunately, politicians obsess about votes unconcerned how it bankrupts the state exchequer.

It is notable that none of those recruited in government service after 2004 had retired as yet, but the Samajwadi Party chief Akhilesh Yadav in order to woo the sizable constituency of serving and retired government employees has promised to discard the NPS in favour of the old pension scheme in the election campaign in UP.

The pity is that the clock on reforms is being moved back.

Yet people like Manmohan Singh and P Chidambaram, who as Union finance minister had fully supported the NPS, refuse to exercise their moral and political influence to try and stop Gehlot and others hell-bent on wrecking the states' finances.

Also, the more the burden of pension and salary bill rises there more will be the constraints on fresh hiring and consequently lesser funds for development spending.

Feature Presentation: Aslam Hunani/

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