Delaying One Rank, One Pension: NDA govt must tread cautiously

There is unease in the Ministry of Finance over implementation of the One Rank, One Pension (OROP) scheme for the armed forces from the current financial year due to the Centre’s weak finances. This clearly signals that Prime Minister Narendra Modi should have given more thought and time in analysing its impact on the government finances.

The ministry is now planning to shift its implementation to the next fiscal, but that will make it even more problematic considering the additional burden that the government will have to bear due to the Pay Commission recommendations on the salaries and pension of the Central government employees.

Though it will be difficult for the government to go back on OROP now as PM Modi has already accepted it, the whole exercise should not turn into an unreasonable and unbearable one.

It will be a good idea, therefore, to wait for the Pay Commission recommendations, which have to come by December 31, and then take a final call on the implementation date and structure of OROP, based on the capacity of the government to pay for it.

A uniform pension has to be paid under the OROP to the armed forces personnel retiring at the same rank after the same length of service, regardless of their date of retirement.

The government has announced that these benefits would be applicable from July 1, 2014, with arrears to be paid in four half-yearly installments, and pensions will be revised every five years.

Besides the estimated one-time outgo of Rs 10,000-12,000 crore on pension arrears, the recurring annual additional cost is expected to be Rs 8,000-10,000 crore, and the 7th Pay Commission award will only add to this.

If the finance ministry is jittery on starting the OROP exercise this year because of the pressures from lower direct tax collections and the impending shortfall from the Rs 69,500 crore disinvestment target on the fiscal deficit target of 3.9% of GDP – what is the guarantee that the situation will be better in FY17?

It will be a good idea to do a thorough analysis of the current and future cost of the OROP first, and try and find ways to make the scheme sustainable, before it is implemented.

Avoiding this would mean government bearing this burden at the cost of other essential expenditures. OROP will become a template for other services – it is on the government to make it a good one, or a bad one.

SOURCE - financial express