80% spike in pension bill in 4 yrs piles up state’s fiscal woes

The Punjab government, which is facing increasing pressure to implement its decision to revert to the old pension scheme (OPS), has seen an 80% jump in its expenditure on pension and other retirement benefits in four years.

The Punjab government, which is facing increasing pressure to implement its decision to revert to the old pension scheme (OPS), has seen an 80% jump in its expenditure on pension and other retirement benefits in four years.

The Punjab government, which is facing increasing pressure to implement its decision to revert to the old pension scheme (OPS), has seen an 80% jump in its expenditure on pension and other retirement benefits in four years. (HT File)

The expenditure on pensions has climbed from ₹10,089 crore in 2018-19 to ₹18,214 crore in the financial year 2022-23, according to the state finances audit report of the Comptroller and Auditor General (CAG) for the year ended March 31, 2023. The pension outgo is set to increase further to ₹19,800 crore as per the budget estimates for the current fiscal. The pension bill, a key component of the committed expenditure of the state government, has added to the fiscal stress of debt-ridden Punjab.

In comparison, the salary bill and interest payments, the two other components of committed expenditure, rose by 32% and 22%, respectively, between financial years 2018-19 and 2022-23. The state’s annual expenditure on salaries and wages increased from ₹24,376 crore in 2018-19 to ₹32,171 crore in 2022-23, while interest payments went up from ₹16,306 crore to ₹19,905 crore during this period. The committed expenditure constituted about 65% of the revenue expenditure of the state on average, in the last five years.

This, along with subsidies, which stood at ₹20,607 crore in 2022-23, consumed much of the revenue expenditure. “The upward trend on committed and inflexible expenditure leaves the government with lesser flexibility for other priority sectors and capital creation,” reads the report tabled in the state assembly.

At 16% of revenue expenditure,

pension burden among the highest

The pension outgo of Punjab is among the highest in the country as a percentage of the total revenue expenditure. The percentage share of pension has been increasing continuously, going up from 13.38% in 2018-19 to 16% in 2024-25, indicating a growing burden on the state exchequer.

Pensions as a percentage of revenue expenditure is higher in Kerala and Uttar Pradesh at 17% and 16.2%, respectively, as per the budget estimates for the current financial year.

Upinder Sawhney, economist and former professor at Panjab University, Chandigarh, attributed the high pension bill of the Punjab government to the higher pay scales of the state employees and the impact of the pay commission.

“As the state government can do little about this now, it needs to curtail wasteful spending and subsidies, and check leakages, and augment its revenues to maintain the fiscal balance,” she suggested. A finance department official said the pension liability had climbed due to the implementation of the recommendations of the Sixth Punjab Pay Commission and an increase in the number of pension cases. The audit report pointed out that the Punjab government while admitting to the fact of committed liabilities being on the higher side, stated that the impact of pay commission on salaries and pensions was felt in 2022-23. However, Punjab State Civil Secretariat Employees’ Association president Sushil Kumar said the state government was still to release 12% dearness allowance and pay commission arrears of the government employees and pensioners.

Demand for restoration of OPS grows louder

The Aam Aadmi Party (AAP) government, which completes two-and-a-half years this month, has a bigger challenge ahead, as the demand for the restoration of the OPS is growing louder in the state. As promised by chief minister Bhagwant Mann, the state government had on November 18, 2022, notified its decision to revert to the old pension scheme and then set up a committee to draft the standard operating procedures, but over 1.7 lakh employees, who joined service after 2004 when the switch to the new pension scheme (NPS) was made, are still awaiting its implementation. Sushil Kumar said they had been taking up the matter with the government panel on the issue, but there was no firm response. During the three-day session of the Punjab assembly that concluded on Wednesday, the opposition members had also questioned the delay in its implementation. On the other hand, the CAG, in its report, said the reversion to OPS would further increase the committed expenditure of the state. “The finances of Punjab are marked by increasing trend of liabilities (debt, guarantees, implicit subsidies, off-budget borrowings, etc.) which pose risk to the target of debt stabilisation and debt sustainability. The implementation of OPS shall further add to this fiscal stress,” it said.

GFX:

Headline: Under stress

Total committed expenditure

2018-19: ₹50,771 Cr

2022-23: ₹70,290 Cr

Increase: 38.44%

Pensions & retirement benefits

2018-19: ₹10,089 Cr

2022-23: ₹18,214 Cr

Increase: 80%

Salaries & wages

2018-19: ₹24,376 Cr

2022-23: ₹32,171 Cr

Increase: 32%

Interest payments

2018-19: ₹16,306 Cr

2022-23: ₹19,905 Cr

Increase: 22%

Budget estimates (2024-25)

Salaries & wages: ₹35,167 Cr

Pensions & retirement benefits ₹19,800 Cr

Interest payments ₹23,900 Cr