Will delinking pension from defence budget help? | The Financial Express

Will delinking pension from defence budget help?

This will bring them under the purview of the Central Civil Services (Pension) Rules, 1972 and Central Civil Services (Implementation of National Pension System) Rules, 2021 which apply to all other civilian central government pensioners.

Will delinking pension from defence budget help?
he obvious rationale for this move is the merger of the railways’ budget with the Union Budget 2017, discontinuing the practice started by the British in 1924 of presenting these two budgets separately. (File photo: Reuters)

By Amit Cowshish

A report in the Hindustan Times of July 4,  has said the Ministry of Railways has accepted the recommendation of its parliamentary standing committee to transfer approximately 1.5 million railways pensioners-presently governed by the Railway Service (Pension) Rules, 1993- to the jurisdiction of the Department of Pensions and Pensioners’ Welfare (DoP&PW). defence budget, national pension system, DoP&PW, ministry of railways, Ministry of Defence, defence news

This will bring them under the purview of the Central Civil Services (Pension) Rules, 1972 and Central Civil Services (Implementation of National Pension System) Rules, 2021 which apply to all other civilian central government pensioners. More importantly, this will result in the pension liability of both these categories of pensioners being met from a single Demand for Grant – ‘Demand No. 41 Pensions’ in the Union Budget 2022-23- which is managed by the Ministry of Finance (MoF).

The obvious rationale for this move is the merger of the railways’ budget with the Union Budget 2017, discontinuing the practice started by the British in 1924 of presenting these two budgets separately. A fair amount of similarity between the pension rules applicable to both these categories of pensioners made the case for merger even stronger.

Surely, there are some differences too, but the peculiarities of the pension structure of the railways are too few to make it impossible to include them with some minor changes in the broader framework of the civil pension rules.

Some defence analysts have been arguing on the similar lines for delinking of the defence pensions budget from the rest of the defence budget and to clubit with the budget of the central government’s civil pensioners under MoF’s Demand No 41.The move to merge the railways and other civil pensioners reinforces their argument.

After all, like the railways’ budget since 2017, the defence budget has always been a part of the Union Budget. Consequently, there is no reason why the expenditure on defence pensions should not be subsumed in the overall pension budget of the central government, or at least the liability not borne by the MoF.

The argument is logical, but the merger of defence and civil pension budgets, or even retaining the defence pensions budget as a separate Demand for Grant under MoF’s administrative control, must be weighed against the likely complications and the perceived advantages.

There is a wide divergence between the pension structure of the civilian and defence pensioners. They are even governed by a different set of rules administered by the DoP&PW and the Ministry of Defence (MoD) respectively. It will be awkward to let this arrangement continue while the entire pension liability is shifted to the MoF, and cumbersome to amend the civil pension rules to accommodate the peculiarities of defence pensions which are far too many.

Butthis is not a major hurdle. The question is not whether it can be done or not; probably it can be. The real issue is whether the defence analysts’ expectation that it will ease the financial hardship of the armed forces is valid.

The principal argument till now for excluding defence pensions from the overall defence budget has been that since this expenditure does not directly contribute to development of the military capabilities, its being considered as a part of the defence budget distorts the narrative on how much India spends on defence.

Furthermore, since a large proportion of the defence budget -22.79% in the current fiscal- is spent on pensions, it eats into the funds for meeting the basic operational requirements, including acquisition of various equipment and platforms, ammunition, and other military capabilities. Conversely, exclusion of defence pensions from the defence budget would allow the MoD to save the money earmarked for pensions and to spend it on acquisitions.

Both these assumptions are questionable. First, exclusion of defence pensions from the ambit of the defence pensions would not be in keeping with the global norms for calculation of defence budget.

The Stockholm International Peace Research Institute (SIPRI) which compiles the data on military expenditures by various countries includes the expenditure not only on pension, but also on ‘defence ministries and other government agencies engaged in defence projects and ‘paramilitary forces, when judged to be trained and equipped for military operations’ in its calculations of defence budget.

So, even if the defence pensions budget is embedded in the Demands for Grant of some other ministry -as was the case with the Border Road Organisation’s budget which used to be a part of the Demand for Grant of the Ministry of Road Transport and Highways till a few years back- it will be culled out and added to the rest of the expenditure by international organisations while calculating India’s defence budget.

Second, it is equally disingenuous to argue that shifting of defence pensions out of the defence budget will make additional funds -equal to the allocation for pensions- available to the MoD. The assumption that the amount allocated presently for defence pensions will continue to accrue to the armed forces for capital and revenue expenditure while the pension liability will be borne by the MoF from a separate Demand for Grant, is unfounded.

The fact is that irrespective of whether the expenditure on defence pensions is met from the MoF’s or MoD’s Demands for Grant, the money must come from a common source: the Consolidated Fund of India (CFI). All government receipts from taxes, borrowing and disinvestment flow into, and all governmental expenditure is met from, the CFI.

The harsh reality is that unless the government’s income, primarily from taxes and not from borrowings and disinvestment, increases substantially, it will remain handicapped in increasing in any substantial manner the budget outlays for not just defence and security, but also for other sectors like health, education, infrastructure development, employment generation, and agriculture, each of which needs substantially higher outlays and happens to be a critical factor in the context of the overall national defence.

The financial woes of the armed forces cannot be addressed by shifting defence pensions out of the defence budget for this will not make additional funds available to them. If the government has sufficient money in its kitty, it can anyway provide additional funds to the armed forces without shifting defence pensions out of the defence budget.

(The author is Former Financial Advisor (Acquisition), Ministry of Defence. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).

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First published on: 08-07-2022 at 16:06 IST