{"id":38564,"date":"2023-12-12T11:06:39","date_gmt":"2023-12-12T05:36:39","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=38564"},"modified":"2025-04-23T12:15:32","modified_gmt":"2025-04-23T06:45:32","slug":"ops-nps","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/ops-nps\/","title":{"rendered":"Return to OPS by few states would exert huge burden on their finances &#8211; RBI"},"content":{"rendered":"<h2>What\u2019s in today\u2019s article?<\/h2>\n<ul>\n<li>Why in news?<\/li>\n<li>What is the Old Pension Scheme (OPS)?<\/li>\n<li>What were the concerns with the OPS?\u00a0<\/li>\n<li>What is New Pension Scheme (NPS)?<\/li>\n<li>What is the Difference between NPS and OPS?<\/li>\n<li>News Summary: Return to OPS by few states would exert huge burden on their finances- RBI<\/li>\n<li>Key highlights of the report titled \u201cState Finances: A Study of Budgets of 2023-24\u201d<\/li>\n<\/ul>\n<h2>Why in news?<\/h2>\n<ul>\n<li>RBI has released the report \u201cState Finances: A Study of Budgets of 2023-24\u201d.<\/li>\n<li>In this report, the RBI said that the return to the Old Pension Scheme (OPS) by a few states would put a huge burden on their finances.\n<ul>\n<li>This will restrict them from undertaking capital expenditure to drive the growth.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>What is the Old Pension Scheme (OPS)?<\/h2>\n<ul>\n<li>OPS offers pensions to government employees on the basis of their last drawn salary. 50% of the last drawn salary.<\/li>\n<li>The attraction of the Old Pension Scheme lay in its promise of an assured or \u2018defined\u2019 benefit to the retiree. It was hence described as a \u2018Defined Benefit Scheme\u2019.\n<ul>\n<li>E.g., if a government employee\u2019s basic monthly salary at the time of retirement was Rs 10,000, she would be assured of a pension of Rs 5,000.<\/li>\n<\/ul>\n<\/li>\n<li>Also, like the salaries of government employees, <u>the monthly pay-outs of pensioners also increased with hikes in dearness allowance or DA announced by the government for serving employees<\/u>.<\/li>\n<li>The OPS was discontinued by the Central government in 2003.<\/li>\n<\/ul>\n<h2>What were the concerns with the OPS?<\/h2>\n<ul>\n<li>The main problem was that the <u>pension liability remained unfunded<\/u> \u2014 that is, there was no corpus specifically for pension, which would grow continuously and could be dipped into for payments.<\/li>\n<li>The Government of India budget provided for pensions every year; there was no clear plan on how to pay year after year in the future.<\/li>\n<li>The \u2018pay-as-you-go\u2019 scheme created inter-generational equity issues \u2014 meaning the present generation had to bear the continuously rising burden of pensioners.<\/li>\n<li>Recently, RBI red-flagged the return to the OPS by some states as a major fiscal concern.\n<ul>\n<li>Several states, including Himachal Pradesh, Jharkhand, Punjab, Chhattisgarh and Rajasthan have announced a return to the OPS.<\/li>\n<li>In this regard, the RBI said \u201c<u>by postponing current expenses to the future, states risk accumulation of unfunded pension liabilities in the coming years<\/u>\u201d.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>What is New Pension Scheme (NPS)?<\/h2>\n<ul>\n<li>As a substitute of OPS, the NPS was introduced by the Central government in 2004.<\/li>\n<li>This pension programme is open to employees from the public, private and even the unorganised sectors except those from the armed forces.<\/li>\n<li>The scheme encourages people to invest in a pension account at regular intervals during the course of their employment.<\/li>\n<li>After retirement, the subscribers can take out a certain percentage of the corpus.\n<ul>\n<li>The beneficiary receives the remaining amount as a monthly pension, post retirement.<\/li>\n<\/ul>\n<\/li>\n<li>Nodal agency: Pension Fund Regulatory and Development Authority (PFRDA)<\/li>\n<\/ul>\n<h2>What is the Difference between NPS and OPS?<\/h2>\n<ul>\n<li>The Old Pension Scheme is a pension-oriented scheme. It offers regular pensions to employees during retirement.\n<ul>\n<li>Thus, in OPS, the pension amount is constant and guaranteed.<\/li>\n<\/ul>\n<\/li>\n<li>On the other hand, the National Pension Scheme is an investment cum pension scheme.<\/li>\n<li>Therefore, NPS doesn\u2019t guarantee fix returns as it is subjected to market volatility.\n<ul>\n<li>i.e., in NPS, <u>contributions are defined, but benefits depend on the market<\/u>.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>News Summary: Return to OPS by few states would exert huge burden on their finances- RBI<\/h2>\n<h2>Key highlights of the report titled \u201cState Finances: A Study of Budgets of 2023-24\u201d<\/h2>\n<ul>\n<li>Return to OPS is not healthy\n<ul>\n<li>The return to the OPS by a few states and reports of some other states moving in the same direction would exert a huge burden on state finances.<\/li>\n<li>Estimates suggest that if all the state governments revert to OPS from the NPS, <u>the cumulative fiscal burden could be as high as 4.5 times that of NPS<\/u>, with the additional burden reaching 0.9 per cent of GDP annually by 2060.<\/li>\n<\/ul>\n<\/li>\n<li>Tax mop-up\n<ul>\n<li>The implementation of goods and services tax (GST) has led to increased tax buoyancy for the states.<\/li>\n<li>The overall tax efforts of the states are strong.<\/li>\n<li>However, further improvement in tax revenues will require them to strengthen their tax capacity, including through tax reforms and effective and innovative tax administration.<\/li>\n<li>In case of non-tax revenues, there is considerable scope for states to increase them through revisions of:\n<ul>\n<li>user charges on electricity, water and other public services,<\/li>\n<li>royalties and premiums from mining, and<\/li>\n<li>better financial management of their public sector units (PSUs).<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li>Revenue expenditure\n<ul>\n<li>On the expenditure side, growth in revenue expenditure during the year so far (April-September2023-24) at 8.9 per cent is much lower than the full-year budget estimate of 18 per cent.<\/li>\n<li>It provides space for undertaking higher capex, while persevering with fiscal consolidation.<\/li>\n<\/ul>\n<\/li>\n<li>States on the path of prudent fiscal management for 2023-24\n<ul>\n<li>States envisage a continuation of prudent fiscal management for 2023-24, with the <u>consolidated gross fiscal deficit (GFD) budgeted at 3.1 per cent of GDP<\/u>.<\/li>\n<li>States\u2019 total outstanding liabilities are budgeted to fall to 27.6 per cent of GDP for 2023-24 from the peak of 31 per cent in 2020-21.<\/li>\n<li>However, outstanding liabilities may remain higher than 30 per cent of gross state domestic product (GSDP) for many states.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<hr \/>\n<h3>Q1)\u00a0What is Pension Fund Regulatory and Development Authority (PFRDA)?<\/h3>\n<p>The Pension Fund Regulatory and Development Authority (PFRDA) is a regulatory body that oversees the pension sector in India. It was established on August 23, 2003. The PFRDA operates under the Ministry of Finance in the Government of India.<\/p>\n<h3>Q2)\u00a0What is defined benefit scheme?<\/h3>\n<p>A defined-benefit plan is an employer-sponsored retirement plan where employee benefits are computed using a formula that considers several factors, such as length of employment and salary history.<\/p>\n<hr \/>\n<p><strong>Source:<\/strong> <a href=\"https:\/\/indianexpress.com\/article\/business\/banking-and-finance\/return-to-ops-by-few-states-would-exert-huge-burden-on-their-finances-rbi-9064110\/\" target=\"_blank\" rel=\"nofollow noopener\"><u>Return to OPS by few states would exert huge burden on their finances: RBI<\/u><\/a><u> | <\/u><a href=\"https:\/\/indianexpress.com\/article\/explained\/old-pension-scheme-debate-economics-politics-explained-8272808\/\" target=\"_blank\" rel=\"nofollow noopener\">Indian Express<\/a> | <a href=\"https:\/\/timesofindia.indiatimes.com\/business\/india-business\/rbi-red-flags-return-of-ops-in-some-states\/articleshow\/97042628.cms\" target=\"_blank\" rel=\"nofollow noopener\"><u>Times of India<\/u><\/a><u> | <\/u><a href=\"https:\/\/www.thehindubusinessline.com\/economy\/fiscal-outlook-for-states-seen-favourable-in-fy24-rbi-report\/article67627666.ece\" target=\"_blank\" rel=\"nofollow noopener\"><u>The Hindu Business Line<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>OPS offers pensions to government employees on the basis of their last drawn salary.<\/p>\n","protected":false},"author":5,"featured_media":38565,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-38564","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/38564","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=38564"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/38564\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/38565"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=38564"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=38564"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=38564"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}