Himachal budget ups FY25 pension outgo by 10% on revert to old scheme

Himachal budget ups FY25 pension outgo by 10% on revert to old scheme

Informist, Thursday, Feb 22, 2024


By Krity Ambey


NEW DELHI – Himachal Pradesh, in its Budget for 2024-25 (Apr-Mar), has raised the estimate of expenditure towards pension in the next fiscal year to 102.54 bln rupees, up 10% from the revised estimate of 93.18 bln rupees for the current fiscal. This comes on the back of the state's decision to switch to the old pension scheme, which is costlier. 


The Congress-led government of Himachal Pradesh, which came to power in 2023, has revoked the National Pension System and implemented the old pension scheme in the state. The old pension scheme, also known as the OPS, is a defined benefit scheme. Under this, the government pays out the entire pension of the retired professional, which is 50% of their last drawn salary.


A study in the Reserve Bank of India's September bulletin had estimated that, in the long run, the shift to the old pension scheme may increase the government's pension spending by over 4.5 times of the outgo under the National Pension System. The research paper, which reflected the views of RBI officials, called the move fiscally unsustainable.


The National Pension System or NPS is a defined contribution scheme, under which, both employee and employer contribute to the pension corpus of the employee. While the employee contributes 14% of their basic salary plus dearness allowance, the government contributes 10% of the same. This pension system, introduced by the Centre in 2004, also provides tax deduction under the old tax regime. 


Himachal Pradesh's pension expenditure is estimated to be 17% of the total expenditure at 584.44 bln rupees for the next fiscal year starting April. For 2023-24, at 93.18 bln rupees, the state has estimated 14.7% of its total expenditure for pension outgo.


As such, the state's fiscal deficit is estimated to expand to 4.75% of the gross state domestic product in 2024-25 from 4.61% of GSDP estimated for the current fiscal year. This is beyond the Centre's mandate for states to maintain a fiscal deficit of below 3.5% of GSDP. 


The Centre's Budget for 2023-24 lowered the fiscal deficit limit for the states to 3.5% of GSDP, including 0.5% linked to power sector reforms. This is as per the recommendation of the 15th Finance Commission, which set the borrowing limit of states at 3.0% of GSDP from 2023-24 to 2025-26, with an extra borrowing window of 0.5% towards power sector reforms. The states fund their fiscal deficit through borrowing. 


Himachal Pradesh's fiscal deficit is estimated to expand in 2024-25 due to the slight rise in the state's revenue expenditure to 466.67 bln rupees next year from 459.26 bln rupees in 2023-24. On the other, the state government has cut its capital expenditure by 7% to 626.97 bln rupees for 2024-25 from 678.09 bln rupees this year.


On the revenue side, Himachal Pradesh's revenue receipts are estimated to grow 4.2% to 421.53 bln rupees from 404.46 bln rupees in the revised estimate for the current year.  End


Edited by Aditya Sakorkar


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