Editorial: So what will OROP cost?

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Published: September 2, 2015 12:51:32 AM

FM must tell the nation of its financial implications

OROPToday, the cost of OROP is estimated – not by the government – at Rs 8,000-12,000 crore, but how much will this rise to in a decade based on the normal hike in salaries given by the Pay Commission each decade? (In pic: Ex-servicemen undergo medical check-up as they continue their hunger strike protesting the non-implementation of ?One Rank One Pension? (OROP), in New Delhi.)

Given its financial implications, it is not surprising Finance Minister Arun Jaitley has categorically ruled out annual reviews of pension as demanded by the veterans as part of their One-Rank-One-Pension (OROP) agitation, saying such frequent reviews do not happen like this anywhere in the world. Indeed, this is something the prime minister failed to do when, on Independence Day, he once again reiterated that the government accepted OROP in principle.

The problem, however, is that with everyone in awe of veterans and their sacrifices, neither the finance minister nor the prime minister sound too convincing – indeed, with each passing day, as more veterans on hunger strike are hospitalized and as more top-ranking officers join their ranks, the government appears to be looking more mean-minded and guilty of not honouring its promise. In order to change the narrative, the government needs to change tack, and quickly. If an annual review is not acceptable – and Jaitley has raised the issue of other groups like the CRPF and the BSF also wanting similar reviews – the question is whether a review every 3 years or every 5 years is acceptable, or will it too be ruinous? After all, if the striking veterans agree to a 5-year review, and they well might, the government will have no option but to accept it now.

This is where, as FE has been arguing, the government needs to come out with its own estimates of what it is that the veterans’ demand will cost the country – and within this, there have to be details of what an annual pension review will cost and how this will change if the review is done every 3 years and every 5 years. Today, the cost of OROP is estimated – not by the government – at Rs 8,000-12,000 crore, but how much will this rise to in a decade based on the normal hike in salaries given by the Pay Commission each decade? If, on the other hand, the review is one each year, how much does the burden escalate by? It is only when this exercise is done that people can make a proper call on whether the veterans’ demand is justified or whether it is too expensive. Given a choice, everyone would like an annual review of their pension, just as those living off interest income after retirement would like fixed deposit rates to be benchmarked to the genuine cost of living – in reality, with interest rates on fixed deposits generally lower than CPI inflation, most people are getting less money each year on their savings; in contrast, with all government pensions indexed to inflation, this problem is taken care of even in the absence of OROP. Renuka Sane and Ajay Shah have done a theoretical exercise on how any pension rises with different assumptions – the cost of a one-rupee-per-day annuity for a 60-year old would rise by 35% if a 4% annual inflation is taken into account, and by 94% if an 8% salary hike – this is what would happen if OROP was to become a reality – is assumed. Do the same exercise if pensions have to be paid from the age of 35 – most veterans retire at this age – and the cost rises by 374%. These are frightening numbers, and imply a big choice the country will have to make since spending more on OROP has to be paid for by spending less somewhere else. This is what Jaitley and Modi need to make clear.

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