• UGI USER
  • Dec 12, 2023
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RETURN TO OPS BY FEW STATES WOULD EXERT HUGE BURDEN ON THEIR FINANCES

Why in the News?

  • Recently, RBI in a report said Return to OPS by few states would exert huge burden on their finances.
Source: The Economics times

Financial Impact of OPS Return:

  • The RBI’s study warns that a shift back to the Old Pension Scheme (OPS) by select states from the New Pension Scheme (NPS) would significantly strain their finances.
  • This move could escalate the cumulative fiscal burden to nearly 5 times that of NPS, amounting to around 0.9 percent of GDP annually by 2060.

Constraints on Growth and Capital Expenditure:

  • Such a transition might restrict these states from allocating funds for growth-oriented capital expenditure, impeding economic progress.
  • This burden could also affect the older OPS retirees drawing pensions until the 2060s.

Threat to Reforms and Future Generations:

  • The RBI views this potential shift as regressive, undermining past reforms and compromising the interests of future generations.
  • It could thwart the benefits of earlier reforms and hinder the states’ ability to drive growth.

State Financial Management and Liabilities:

  • Despite efforts towards fiscal prudence, states anticipate maintaining a consolidated gross fiscal deficit at 3.1 percent of GDP.
  • Outstanding liabilities may still hover around 27.6 percent to 30 percent of Gross State Domestic Product (GSDP) for several states.

Tax Revenues and Necessary Reforms:

  • The study acknowledges increased tax buoyancy due to GST implementation. It emphasizes the need for states to strengthen tax revenues further, possibly through revisions in charges for public services, mining royalties, and efficient management of public sector units (PSUs).