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RBI’s warning to states like Himachal and Rajasthan, if this work is done then they will have to face dire consequences


Photo: File rbi

The Reserve Bank of India (RBI) has warned about the implementation of the old pension system in some states. The central bank has said that there is a big risk regarding the fiscal scenario at the level of the states and such liability will increase for them in the coming years, for which there is no provision of money. The RBI in its report titled ‘State Finances: A Study of the Budget for 2022-23’ has said this at a time when Himachal Pradesh has recently announced the re-implementation of the old pension scheme (OPS) linked to dearness allowance. Earlier, Rajasthan, Chhattisgarh and Jharkhand had informed the central government and the Pension Fund Regulatory and Development Authority (PFRDA) about their decision to restore OPS.

The Punjab government had also issued a notification on November 18, 2022, regarding the implementation of OPS for state government employees. These employees are currently connected to the New Pension System (NPS). The New Pension System (NPS) implemented from January 1, 2004 is a contribution based pension scheme. In this, along with the employee, the government also contributes. On the other hand, in the old pension system, the pension of the employees is 50 percent of the last salary taken before retirement and this entire amount was given by the government.

According to the RBI report, “Some states are talking about implementing the old pension system. Due to this, a big risk is hovering over the fiscal scenario at the level of the states. . Many economists have also expressed concern about the re-implementation of the old pension system. They say that this will adversely affect the finances of the states.

Montek Singh Ahluwalia, who was the deputy chairman of the erstwhile Planning Commission, had recently said that bringing back the OPS would be a travesty. As per the RBI report, the states have increased the revenue expenditure in the budget for the financial year 2022-23. These expenses mainly include non-developmental expenditure like pension and administrative services. On the other hand, the budget for medical and public health and natural calamities has been reduced.

Provisions have been increased for the housing sector. According to the report, interest payment, expenditure on administrative services and pension expenditure are estimated to be slightly higher than the revised estimate of 2021-22.

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