The Indian Express Editorial
Examining The Impact Of Reverting To Old Pension Scheme On State Finances
During the 2000s, India made a significant financial change by adopting the National Pension Scheme (NPS). This reform saw backing from multiple political factions. It was kick-started by the NDA, led by then Prime Minister Atal Bihari Vajpayee, and was continued by the UPA. Only West Bengal and Tamil Nadu did not adopt the NPS and retained the old pension system.
However, the political agreement that facilitated this financially cautious decision appears to be breaking down. States such as Rajasthan, Chattisgarh, Jharkhand, Punjab, and Himachal Pradesh, governed by parties opposing the BJP at the national level, are now reverting to the old pension system.
Key Points
- The transition to the National Pension Scheme in the 2000s was a significant fiscal reform supported by various political parties.
- The NPS was adopted by most states, with West Bengal and Tamil Nadu as the only exceptions.
- Recently, several states have announced a shift back to the old pension scheme.
- This decision, motivated by politics, will only benefit a small section of voters and will have negative long-term fiscal impacts.
- According to a new study by the Reserve Bank of India, this shift could compromise the fiscal reforms’ benefits and the interests of future generations.
The old pension scheme differs from the New Pension System (NPS) in its structure. It’s a defined benefit scheme, meaning:
- The benefits employees receive are predetermined.
- For state government workers, the pension is set at half of the final salary they earned.
This scheme, however, puts a significant strain on the government’s finances. According to a study by the Reserve Bank of India (RBI), returning to this unfunded scheme would cost about 4.5 times more than the NPS, leading to:
- An additional burden that would reach 0.9% of the GDP each year by 2060.
State governments are allocating a significant portion of their budgets towards pensions. To illustrate:
- In the fiscal year 2022-23, states reserved Rs 4.63 lakh crore for pensions, a rise from Rs 3.45 lakh crore in 2019-20.
- Overall, pension allocations amounted to 11.8% of the revenue expenditure for all states and Union Territories.
- Some states allocated even more – Uttar Pradesh at 16.9%, Kerala at 17.1%, and Himachal Pradesh at 19.3%.
The return to the old pension scheme might offer short-term benefits. However, over time, it’s expected to put greater financial strain on state governments. The RBI study predicts:
- The shift could make financial stress unmanageable in the medium to long-term.
- As the pension burden rises, states may need to reduce capital expenditure, negatively impacting long-term economic growth.
In the lead-up to national elections, there might be a temptation to announce such popular measures. However, all political parties should avoid policies that may have detrimental long-term effects.
Source: (Editorial) Undoing Reform
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The Hindu Editorial
Dangers Of Solar Radiation Management
India experienced its driest August in a century this year, raising concerns about the impact of disrupted weather and its consequences on the economy. While the connection between this anomaly and climate change is yet to be established by scientists, it highlights the urgency of climate mitigation.
Amidst this urgency, one idea that has surfaced is solar radiation management (SRM), which involves blocking some incoming solar radiation to cool the Earth’s surface. This desperate and potentially hazardous approach seeks to address the challenges posed by climate change.
The Climate Overshoot Commission report recently highlighted several important concerns
- Lack of understanding: Geoengineering researchers have warned that the intricacies and implications of SRM are not fully understood yet. Unanticipated consequences could arise if the technology were deployed prematurely.
- Interconnected weather systems: Scientists have yet to fully grasp how SRM might affect various weather systems globally. These systems are complex and interconnected, and an intervention in one could have unforeseen impacts on others.
- Resource diversion: More controversially, mitigation technologies like SRM and carbon capture could distract from the most effective climate strategy: cutting emissions. These technologies require significant resources and political will, which could otherwise be directed towards reducing emissions.
Also Read | India’s Climate Change Policy
Advantages Of Emission Cuts Over Mitigation Strategy
- Efficacy: Cutting emissions is a direct and effective way to combat climate change. This approach tackles the problem at its root, by reducing the amount of greenhouse gases that enter the atmosphere.
- Avoids the 1.5-degree Celsius threshold: The Earth’s surface is on the verge of surpassing the 1.5-degree Celsius threshold established in the Paris Agreement within the next decade. Taking action to reduce emissions at this crucial moment could effectively avert this outcome.
- Reduced risk: This strategy is less risky compared to untested solutions like SRM. It does not carry the potential for unknown, potentially catastrophic side effects.
The urgency of climate change demands immediate and effective action. While advanced techniques like SRM might be tempting, we must not lose sight of the proven, effective method: cutting emissions.
Source: (Editorial) Keep Calm