NITI Aayog VC expresses concern over revival of old pension scheme

NITI Aayog Vice Chairman Suman Bery on Sunday expressed concern over the revival of Old Pension Scheme by some states, saying it would burden future taxpayers at a time when India needs to focus on fiscal prudence and promoting sustained growth.
In an interview to PTI, Bery also underlined the need for enhancing capital expenditure and creating a space for the private sector through fiscal consolidation.
“I am slightly more worried about the return to the Old Pension Scheme (OPS). I think that is more of a concern because the cost will be borne by future taxpayers and citizens, not the present,” he said.The OPS, under which the entire pension amount was given by the Government, was discontinued by the NDA Government in 2003 from April 1, 2004.Under the new pension scheme, employees contribute 10 per cent of their basic salary towards pension while the State Government contributes 14 per cent.
“I think political parties have to exercise discipline, since we are all working for a common cause of growth of the Indian economy, and for India to become a developed economy, you know the long-term (objectives) needs to be balanced against the short-term (objectives),” Bery said. Two Congress-ruled states, Rajasthan and Chhattisgarh, have already decided to implement OPS while BJP-ruled Himachal Pradesh has promised to restore the scheme if voted to power in the state.
Jharkhand too has decided to revert to OPS, while Aam Aadmi Party-ruled Punjab recently approved the reimplementation of OPS.
Bery further explained that in general, state borrowing is effectively limited by the RBI so states don't threaten the overall financial stability.
“Within this debt limit, duly elected state governments are free to make their own choices on taxation and expenditure priorities, and to bear the political consequences of these choices,” he said.According to Bery, currently RBI floats state debt on a club basis, so more prudent states don't benefit from their discipline and this is unlike the situation in advanced countries, where states and local bodies' borrowing costs are based on their own creditworthiness.
“India should consider moving toward greater market discipline of state finances as is the case for the Union Government. This will take a considerable period to become a reality but preparatory thinking could begin,” the NITI Aayog VC suggested.