The government and retired military officials have been at loggerheads over the One Rank, One Pension (OROP) scheme for some time now. The finance ministry says upfront payment of arrears for the scheme will have wide fiscal implications even as a Supreme Court bench comprising Chief Justice DY Chandrachud and Justice PS Narasimha directed the Union government to pay arrears to eligible pensioners of the Indian armed forces by March 15, 2023. Several lakh pensioners will benefit from the judgement.
In its revised estimates for 2022-23, the government has said that while it is fiscally prudent to clear pending payments for OROP in instalments spread through the financial year, any deviation from the same could have resulted in abnormal borrowing. The government has also said that it is a standard practice, as has been seen in earlier instances of Pay Commission-related payouts or the initial OROP rollout, that any large lump-sum payment gets distributed in instalments to manage cash flow. Any deviation affects the government’s market borrowing and hence market yields, which are also seen as crucial for borrowings by state governments and corporates.
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What is the OROP controversy
Under the One Rank One Pension scheme, uniform pension is to be paid to armed forces personnel retiring at the same rank with the same length of service, regardless of when they completed their service or retired. Before this, there was a wide gulf between the pensions of earlier retired personnel as the salaries of the later joinees were higher due to increasing costs and standards of living, and the resultant increases in salaries. Earlier, ex-servicemen used to get pensions as per the Pay Commission recommendations of the time of their retirement. OROP rectified this problem by giving all retired armed forces personnel a uniform pension. Armed Forces personnel who had retired till 30th June 2014 are covered under it.
Now, the government was supposed to pay the dues in one single instalment which has put the finance ministry in trouble. The Supreme Court has also agreed to the government clearing dues in three equal instalments by February 28, 2024 which has become the centre of the problem now.
The government says it does not have the money to clear dues in one time. Its contention of fiscal prudence may not hold water if one deep dives into its expenditure profile for the next financial year beginning April 1, 2024 published in February of this year. The 2023-2024 budget envisages and caters for an expenditure of Rs 50 lakh crore or thereabouts, an increase of around Rs 5 lakh crore over the revised estimates for the last fiscal with over Rs 4 lakh crore budgeted for subsidies and grants. The government needs Rs 28,000 crore to clear arrears pending for over three years.
Most of the military pensioners are solely dependent on this income and given the current macroeconomic situation, it is a no brainer that these veterans have been left stranded in most dire of the times.
The government has emphasised that its fiscal calculations have been under strain in the aftermath of the Russia-Ukraine war and a global economic meltdown. While the revision for OROP was due in 2019, it got delayed with other revisions for government payouts during the pandemic. It also said that 2020 and 2021 were among the worst years financially for the government of India. Also, the pension expenditure of the defence ministry has gone up by more than 20% over the last five years, with pension payments growing at an annual rate of 12% between 2013-14 and 2023-24.
Several countries including the United Kingdom, Canada, Australia, United States, France, and Germany follow the One Rank, One Pension scheme for their ex-military personnel. The specific details of each country’s OROP scheme may vary, including eligibility criteria and the amount of pension provided. In spirit, only the United Kingdom’s policy is the closest to the Indian OROP. The UK has a uniform pension that is regularly revised, irrespective of rank and date of retirement.