Reverting to OPS will put huge burden on states’ finances: RBI

New Delhi, December 13

A Reserve Bank of India report has said reverting to the DA-linked Old Pension Scheme (OPS) will exert huge pressure on states’ finances and restrict their capacity to undertake developmental expenditure.

The governments of Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have informed the Central government and Pension Fund Regulatory and Development Authority (PFRDA) about their decision to revert to OPS for their state government employees. These state governments have requested for withdrawal or refund of their contribution to the Centre.

“Internal estimates suggest if all the state governments revert to the OPS from the National Pension System (NPS), the cumulative fiscal burden could be as high as 4.5 times that of NPS, with the additional burden reaching 0.9% of GDP annually by 2060,” the report said.

“Thus, any reversion to OPS by the states will be a major step backwards, undermining the benefits of past reforms and compromising the interest of future generations. Any further provision of non-merit goods and services, subsidies, transfers and guarantees will render their fiscal situation precarious and disrupt the overall fiscal consolidation achieved in the past two years,” it said.

This will add to the pension burden of older OPS retirees whose last batch is expected to retire by early 2040s and, therefore, draw pension under the OPS till the 2060s. This may have led some states to budget for fiscal deficits above 4% of GSDP in 2023-24 against the all-India average of 3.1%. They also have debt levels exceeding 35% of GSDP against the all-India average of 27.6%.

The RBI’s report on ‘State Finances: A Study of Budgets of 2023-24’ also said the provision of non-merit goods and services, subsidies, transfers and guarantees will render their fiscal situation precarious.

Findings of central bank report

Internal estimates suggest if all the state governments revert to the OPS from the National Pension System (NPS), the cumulative fiscal burden could be as high as 4.5 times that of NPS, with the additional burden reaching 0.9% of GDP annually by 2060.