Amid a political tussle over the issue of free voter allowances and the Supreme Court referring a case in the matter to a larger bench, former NITI Aayog vice-chairman Arvind Panagariya said a survey promise is “fair game” if it is a one-time event and “does not create a long-term liability”. for the next government. However, Panagariya termed as “sinful” and “immoral” poll promises such as revival of the Old Pension Scheme (OPS), which will result in a significant financial burden on governments in the future.
Panagariya said, “My view is that given that in a democracy, promises will be made. I don’t call these benefits, I call them promises. The nature of these promises is very important… For example, what is okay? If it’s a one-time transfer that won’t significantly burden the budget of the future government, then I think it’s fair game…”
But he said such promises “should not establish long-term government liability”. He said “it’s sinful to create commitments so that if you win an election, they won’t apply to you and will apply to a government that goes even further into the future” – citing poll promises to revive the OPS that were scrapped by then-Gov. NDA in 2003 as a “case study”. The Congress raised the OPS as one of its key promises ahead of the Himachal Pradesh polls last week, while the AAP offered a similar benefit ahead of the Gujarat polls next month.
Two Congress-ruled states, Rajasthan and Chhattisgarh, have already decided to introduce OPS, while the AAP government in Punjab has taken a similar step. Jharkhand has also decided to go back to the old pension system. Asked if political parties should refrain from the OPS pledge, Panagariya said, “Absolutely. It is very attractive to those parties who want to do it…. the first liability incurred will be in 2034. I think assuming 30 years of service is needed to retire. So those who joined in 2004 will retire in 2034. There will be no liability until 2034. So your ‘sarkar’ is safe. You don’t pay. With all this responsibility and whoever will follow after 2034, you are really holding back the government that will be in power in 2034. This is actually very sinful.
It would be immoral to do so. It would be immoral to promise this kind of system where you move employees from the current pension system to the old one.” Panagariya said states specifically will not be able to afford the financial burden of the old system. “I don’t think any state can do that. I don’t think any state can afford it because the liability will be very big. They will have to finance it from tax revenue. Where are the tax revenues?
There may be some growth in the next 10 years, but it would not be enough to generate the required revenue. By the way, when you use a large portion of tax revenue to provide pensions, you crowd out your other expenses. There are other expenses like infrastructure and welfare of the poor,” he said. Referring to Brazil’s financial situation, Panagariya said: “The country you should look at to see what can happen to you is Brazil. Almost 12-13 percent of GDP in Brazil today goes to paying pensions. You can’t afford that. Our tax-to-GDP ratio is only around 16 percent. So how can 12-13 percent of GDP be allocated to pensions? What Brazil is doing…”
Referring to India, he said, “What percentage of the population are government employees? No more than 2 percent. How can you take 12-13 percent of GDP from taxpayers and give it to 2 percent of the population? It is also distributionally regressive. And especially the intergenerational transfer you are making will tax the workers of tomorrow; and the workers of today, to whom you will give money.” Panagariya was the Vice-Chairman of NITI Aayog from January 2015 to August 2017 and is currently Professor of Economics and the Jagdish Bhagwati Professor of Indian Political Economy at Columbia University.
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