Old pension plan may cost states dear: Finance secretary

NEW DELHI: Finance secretary TV Somanathan on Thursday said states reverting to old pension schemes should be cautious as it could have implications for future governments, while underlining the need to keep the pace of increase in revenue expenditure for making interest payments and paying pension and subsidies lower than the nominal growth rate of the economy.
“It is a significant issue, which if not properly addressed, can very adversely affect the finances of states that are making the changes. It is one of the cases where you are appearing to save money today while creating huge problems for future generations and future governments,” the finance secretary told TOI in a post-Budget interview.

In recent months, some of the opposition-ruled states such as Rajasthan, Jharkhand, Chattisgarh and Himachal Pradesh have opted out of the contributory New Pension Scheme to the Old Pension Scheme that offers 50% of the last pay drawn to retired government employees.
Pension and interest payments are part of the revenue expenditure of the government, which are seen to be non-productive and sticky, but the Centre and states cannot walk away from them due to their commitments.

For 2023-24, the Centre has budgeted for a mere 1.2% rise in revenue expenditure by containing the food and fertiliser subsidy. Somanathan defended the allocations, arguing that they were realistic and may not breach the budget estimates. In the medium to long-term, however, he said there is a need to ensure that revenue spend was lower than the nominal GDP growth rate.
“We get some headroom if the economy is growing at 10.5% and taxes grow at the same pace, and the rise in revenue expenditure is slower. This means that we have to be very tight on budgeting of any revenue expenditure which is discretionary, unproductive schemes,” he said, adding that other than the priority schemes, the size of several central schemes is growing at a moderate pace.

The senior-most civil servant in the finance ministry also said there was an adequate increase in the allocation for rural development, other than MGNREGS, which was demand-driven. “For PM-Aawas Gramin the allocation is going up by over 100%. Jal Jeevan Mission is seeing a Rs 10,000 crore increase. Overall, around Rs 40,000 crore of extra spending from the Centre’s programmes is going into the same rural areas where MGNREGS is working. So, that will have some impact on MGNREGA demand. Besides, the economy is doing better. So demand will return to 2019-20 levels,” he said.