India's Opposition Parties: Burning Taxpayers Money for Political Bread

Opposition parties in India are calling for the reinstatement of the old pension scheme, which provided retired government employees with 50% of their last salary as a pension. However, critics argue that bringing back this scheme could have severe economic consequences.

 Government Expenditure on Pension

Currently, the Indian government allocates 13% of its budget towards pension payments, and 40% of this goes towards salaries and pensions combined. The expenditure on pensions has been increasing annually, mainly due to the rising number of pensioners in the country, which currently stands at over 70 lakh. Interestingly, there are variations between states, with some states spending up to 21% of their budgets on pensions.

 Transition from Old Pension Scheme to NPS

One of the reasons why opposition parties are demanding the reinstatement of the old pension scheme is because the previous scheme only covered government employees, leaving 90-92% of the workforce without any pension benefits. In response to this, the New Pension Scheme (NPS) was introduced, which caters to both government and private sector employees. Under the NPS, employees are required to invest a portion of their salary, but in return, they are offered tax-free withdrawal options and sustainable pension plans.

 Comparison of OPS and NPS

Government employees tend to prefer the old pension scheme due to its simplicity, as it does not require any personal investment. On the other hand, the NPS involves individual contributions, employer participation, market investments, and tax-free withdrawals. However, it is important to note that implementing the old pension scheme nationwide could lead to a significant increase in the government's pension expenditure, which poses economic risks.

 Political and Economic Implications

Despite recognizing the economic risks associated with the old pension scheme, opposition parties support its reinstatement for political gains. However, if the scheme were to be implemented across the country, it could result in an additional burden of Rs 31 lakh crore on the government. Prominent figures such as Manmohan Singh and Montek Singh Ahluwalia oppose the old pension scheme, citing its impracticality. Critics argue that the demand for this scheme is driven by personal and political interests rather than economic considerations. Even economists, including Raghuram Rajan, have criticized the economic viability of the old pension scheme, emphasizing its unsustainability.

 Perspectives on OPS

In conclusion, it is essential for individuals to assess their preferences and carefully consider the economic implications of different pension schemes. With key figures opposing the old pension scheme and highlighting its impracticality, it is crucial to prioritize sustainable and economically viable options when making decisions related to retirement planning.