Facts for Prelims (FFP)
Source: LM
Context: Several Indian states reverting to the Old Pension Scheme (OPS) from the New Pension Scheme (NPS) have been cautioned by an RBI article, which deems this move a “major step backwards” in fiscal management.
States such as Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have switched to OPS.
What is fiscal management?
Fiscal management refers to the process of planning, organizing, and controlling a government’s finances to ensure responsible and effective use of public funds. It involves activities such as budgeting, revenue collection, expenditure allocation, and debt management to achieve economic stability and meet government objectives.
Observations by RBI:
- Reverting to the Old Pension Scheme (OPS) might briefly reduce state expenses, but it will surpass the New Pension Scheme (NPS) contributions by the 2030s.
- This shift could inflate the pension burden by around 4.5 times compared to NPS.
- By 2060, this additional OPS burden could reach about 1% of GDP annually for states.
- This move goes against the global trend of adopting defined contribution plans and is considered fiscally unsustainable.
