Why OROP issue is difficult to deal with ? – Livemint Article

Why OROP issue is difficult to deal with ? – Livemint Article discusses the complexcity of one rank one penssion issue and the need for gradually moving to Contributory Pension Fund system

Each of us has some link at a family level, direct or indirect, with the armed forces. A parent, a brother, an uncle, a cousin, a son, or a nephew. At a personal level, we know the first-hand stories of a wife not knowing if an ‘exercise’ will end in a dead husband. Of a father not knowing if the next landmine will have his son’s name on it. At a societal level, we can’t forget the border battles, and much closer home, the comforting presence of the army trucks and the green helmets as they rolled in after the 1984 riots to calm fires in West Delhi residential clusters. Can’t forget that when everything else fails in civic life, the army is called in to restore order. The army is called in not just to maintain order, but even for things like making that foot over-bridge that kept collapsing before the Commonwealth Games. And we have to only look over to our immediate northwest to see what damage an army can do to a nation.

How can the nation then say no to the one demand that the men in uniform are making—give us enough when we remove the uniform and lead civilian lives? The heart says it should be done. So why the delay? It could be that the answer is not always that simple. The One Rank One Pension (OROP) issue that seeks to index old pensioners to benefits that current ones get, has got all the ingredients of a perfect bomb: an emotive issue, kicked around by cynical politics of an outgoing government promising something it knew it would not be responsible for, an aspiring change maker who did not understand the multi-dimensional issue that OROP is and making a promise to implement it. And now a public stand-off between the veterans and the government.

Why is the issue so difficult to deal with? Why not just give the armed forces what they want? The issue is complicated on two counts (there are many other issues, of course, but I think these two are key). One, the country does not have the money over time to fund a rising bill of defined benefit (DB) pensions. DB pensions give the person retiring a certain percentage of his last salary, keeping in mind the number of years worked. DB schemes are ultimately un-fundable since declining populations find fewer people funding larger and larger numbers of the retired. Many countries across the world are in the process of moving away from DB plans. Two, and even more disastrously, OROP will open the doors for similar demands from other groups. Do Central Reserve Police Force soldiers deserve any less? What about the Indo-Tibetan Border Police? And the police? The first off the block has been the railway unions demanding OROP. “Railwaymen are performing dedicated service for the nation. Railway is the lifeline of the country. Employees are working round the clock across the country,” the general secretary of All India Railwaymen’s Federation was quoted as saying in a newspaper report. Other unions are waiting and watching, and once OROP is announced, expect a deluge of protests and court cases for parity.

The one parity we should be discussing today is parity with central government employees who have been moved to a defined contribution (DC) scheme from a DB since 2004. DC schemes put control of the future in the hands of the individual and what the state needs to do is design an efficient system that is fair to the social security seeker. India has a state of the art DC vehicle in the National Pension System (NPS). The costs are wafer-thin, the products are few so as to not freeze choice, and there is no fund manager risk since equity investing is restricted to index funds. For those unwilling or unable to choose the right fund, there is a default lifecycle fund that reduces equity as the person ages and moves into safer debt. The government should use the current focus on pensions to negotiate the move from DB to NPS for all categories of pensioners—those already on a DB, but, as was done with the civil services, from a given date, all new employees move to the NPS.

The armed forces have almost seven decades of goodwill banked, but an uncompromising demand irrespective of the consequences may change this equation. Unhappily for us, there are no recent academic studies that show what state pensions cost the nation. There is a 2006 paper that has some estimates (which are scary) and can be read here: http://mintne.ws/1J0DNWx . Even this old study clearly showed that DB pensions are unsustainable. Now to open the door for OROP for all categories of government employees will be a fiscal disaster for India. A more middle-of-the-road solution may be the only one that is sustainable without derailing the future of the country. No person who has defended the country against the dushman will want to see the country ship out gold one more time because OROP has opened the doors to a future that is unsustainable. If a middle-of-the-road solution is not acceptable, we only need to look west once again. This time, a little further than our immediate neighbour, to Greece, and see what runaway benefit bills can do to a nation. And because of the colour coding rules of the world, India should not expect the global multilateral agencies to expend the same kid gloves that Greece has been dealt with.

Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, Yale World Fellow 2011 and on the board of FPSB India. She can be reached at [email protected]
Source: Livemint


  1. The basic mistake was Parliament accepting the 6th PC recommendations without studying the financial implications. Imagine someone who retired as, say, Secretary with a last pay drawn of Rs. 4000 pm getting a pension of Rs. 80000 pm now! Civil bureaucrats have literally taken the country for a ride….

    1. Shri S V Padmanabhan wrote :” Imagine someone who retired as, say, Secretary with a last pay drawn of Rs. 4000 pm getting a pension of Rs. 80000 pm now! Civil bureaucrats have literally taken the country for a ride”. Sir I would like to know, how much pension an army officer of the similar rank as the secretary is receiving today. Is there any difference? After all the pay commissions, the senior officers lose out some increments, compensated partially though by granting one increment for 2/3 increments(Bunching). Our fathers used to be happy that they were getting more pension than their last drawn salary after 10-15 years of retirement. Old pensioners get their pension revised after every pay commission, getting the same rank equivalent benefit. I think they should not complain about losing out some incremental benefit as the newly retired officer would be getting, after all they are enjoying the benefit for many years. The difference could be 10-15 % only I suppose. If I am wrong, please give me one or two examples to understand the problem properly. Thanks. I am a retired central govt. pensioner. Off course I am against the rich politicians getting life long pension for their few years of service/disservice.

  2. Sir, Please refer the article as above regarding the OROP difficult deal : All are opening their mouth in wide while giving pension to Defence personnel..
    Can you please think about the so called Polilticians MLAs/MPs, their salary, allowances. other benefits and privileges etc. Apart from this, they are
    authorised Pension for their life/after their life too. just after serving a period of JUST 5 YEARS in Assemblies OR Parliament. ( But whereas Defence personnel
    have to serve for minimum period of 20 years unblemished service to get a minimum pension.)

    Which way it is justified ??????? Kindly do not compare the Civilians with Defence Personnel – who are well disciplined from the day of their appointment
    in the Defence Forces.

    I am a Senior Citizen, and I have not seen any disciplined Politician so far in my Life.

    Will any one answer my question ??? I will be much grateful.

    1. OROP is not an issue but has been made one by the beaurocrats. The rank structure in the defence forces needs to be understood first. The pension structure which is presently faulty and grossly misunderstood must be rectified. The Supreme Court has understood it and their wisdom has to prevail. No government can refuse to accept it and implement it. The 6th Pay Commission was accepted and the orop should also be implemented forthwith. There are no arithmetical calculations pending. Politicians are diluting the issue. The Defence Forces deserve much more Mr Prime Minister. Please ask your conscience.

  3. There is no doubt that grant of DROP would open a pandoras box. Not only para military forces, besides railways, even Central Govt. employees would join in, followed by State Govt. employees, police, etc. I agree that our armed force personnel deserve a better pension as they retire early and need to be sustained. The existing system of pension by the Central Govt. employees is only for employees who joined service prior to pril, 2004 and eventually with the pensioners dwindling over a period of time, ultimately the liability of Central Govt. too would come down and ultimately end in a few decades. The best solution is NPS for new recruits to para military and armed forces w.e.from 1.9.2015. For existing armed force personnel, Govt. should ensure a much better minimum pension so sustain the pensioners.

  4. I do not agree that change over to NPS is the solution to the pension problems. Pension payment to retired employees eithjer civilian or Service personnelis not to be treated as a liability mbut a responsibility of the STATE. and should be statutorily guaranteed. There is no harm in introducing UPS provided that the state guarantees that it would supplement if there is a shortfall in the pension given by the NPS..

  5. Dear sir,

    It seems this author has misunderstood the orop as many have done it. Yes it is a difficult to implement as the pension budget will keep increasing. We may have to find out some middle way between the government choice and soldiers demand but saying others also will start demanding orop is simply unacceptable. I am putting a few facts which many of you are not aware.

    1. The government recruits a soldier, keeps him for 15-17 years and if he is not in a position to pick up his promotion it simply kicks him out. Is it happening in any uniformed service or civil service. What is his age at that time say 33-36 yrs. If he would have been in any other government service he still would have served for 27 to 24 years. Now who will pay him for the loss he had suffered?

    2. The structure in Army is a pyramidical system so all the sepoys cannot become Nk because the vacancies are always less. So in each batch atleast 10% soldiers are kicked out for no fault of their own,

    3. Even if gets the first promotion if he does not get the second promotion in another say 6 or 7 years then again he is kicked out, because of the pyramidical structure of the Army

    4. Now a civilian while serving has opportunities to learn and improve his qualification. But what about the soldiers? The places where he is posted is survival itself difficult, so there is no question of improving his qualification. Forget about acquiring qualification he forget whatever knowledge he had acquired. Even in a peace station his duties are so arranged that upto the rank of havildar, he cant have any freetime.

    5. If you go to any nationalised bank you will see many ex Air Force personnel are serving there. You know why? The posts are reserved for exservicemen taking into consideration the strength of army soldiers coming out every year. But since none of the army soldiers are able to clear the exam, most of these reserved posts are cornered by ex Air Force personel. Due to the denial of the knowledge and opportunities to learn, , these soldiers couldnot clear these exams and end up d doing menial job like issuing tickets in parking areas, security guards etc.

    6. If a civilian employee even if he is caught for corruption people are thinking thousand times before making him compulsort

  6. I would like to request Ms M Halan , to calculate the finances denied as salary & pension , to all the “Armed Forces” who have served this country from independence day onwards; by the subsequent pay commissions vis-à-vis the benefits pocketed by the bureaucrats in the same pay commissions.

    She being a financial expert shall be able to calculate easily given all the inputs. Who will give her the inputs. Get it from RTI sources.
    You will be surprised that even the salary denied to us is given as a lump sum with nominal interest shall suffice & clear the MESS of OROP.

    Please do not buy these stories of others will also demand as you Imagine and make sound a wise proposal of unsustainable finances.
    No other forces or govt servants have been denied their salaries when in service except the “Armed Forces”, who been clinically cheated by the bureaucrats
    over the last four DECADES.

    Please do acknowledge after your computation.

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