The Hindu : Pension problem won't retire that easily

Online edition of India's National Newspaper
Wednesday, Oct 23, 2002

Southern States

Southern States - Tamil Nadu

Pension problem won't retire that easily

By V.Jayanth

CHENNAI Oct. 22. At last week's meeting of Chief Ministers in New Delhi, Jayalalithaa raised a sensitive issue - how to slow down the annual growth of pensions to less than 10 per cent. She was concerned at the ballooning salary and pension bill.

The AIADMK regime has consistently campaigned that the root of the current fiscal crisis lay in implementation of Fifth Pay Commission recommendations and the ``profligacy'' of the previous government.

Apart from implementing the Commission recommendations, the DMK regime agreed to pay arrears with effect from January 1996. But, when it could not find funds, it impounded 60 per cent of the arrears and announced that the payment would be made in 2003. That is due next year.

According to official sources, the pension bill has risen alarmingly during the past five years and the liabilities alone have shot up to 13 per cent of the revenue expenditure. In hard terms, the pension bill trebled from Rs. 1,070 crores in 1996-97 to Rs. 2,927 crores in 2000-01. It has already crossed the Rs. 3,000-crore level and threatens to touch the Rs. 4,000-crore mark in a year or two. ``It has been growing at an incredible rate of 30 per cent per annum, on an average, during the past five years and has emerged the fastest growing component in the total revenue expenditure'', explains a senior official.

Though Tamil Nadu has already announced a contributory pension fund scheme for new entrants, the problem with the existing pensioners and those who retire in the next few years will have to be tackled.

Officials say the problem was compounded by a decision allowing computation of pension at 50 per cent of pay for 30 years of service, as against 50 per cent for 33 years, allowed by other States and the Centre. And, with the Pay Commission recommendation that the pension be equalised for all older pensioners in 1998, the bill ``went out of control''. The Government is looking for solutions, It had failed to move the Centre to adopt a more ``rigid line'' against ``pampering government servants''.

A simple solution

Retired officials and economists have come up with several suggestions. A simple solution can be withdrawal of the commutation benefit, which is a scheme to pay part of the future pension in lumpsum at the time of retirement. This may save about Rs. 350 crores a year and thereby slow down the rate of growth - only for a year or two.

But there is also the concern that the Government is dealing with a sensitive section and pensioners should not be put to undue hardship.

Another suggestion is to change the discount factor for computing the commutation amount to the current interest rate of 8 per cent, instead of four per cent in discount tables.

This, it is stated, can bring down the entitlements by 20 per cent.

A more feasible alternative may be offering the commutation amount in small savings instruments for at least 50 per cent of the payment. It may not be possible now to rollback the concessions given by the previous regime, based on the Central pattern. As it is, the State is finding it difficult to hold back bonus, additional dearness allowance, leave encashment and other facilities.

But there appears to be a determination on the part of the Government to ``deal firmly'' with the fiscal crisis, trying to contain the expenditure on salaries and pensions to less than 50 per cent of the total revenue receipts, from the present 62 per cent.

A pointer to the direction the Government will take is expected in December, when the Staff Expenditure Reforms Commission, headed by the former Finance Secretary, A. M. Swaminathan, completes its task.

It has already submitted interim reports, recommending ``substantive downsizing'' in many departments.

The Chief Minister has already indicated th at a 30 per cent downsizing will be done over a period of time.

Now that the Centre has shown no inclination to face the problem together, the States will have to fend for themselves.

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