One-rank one-pension - An economic analysis of an emotional issue - The Daily Reckoning
The Daily Reckoning by Vivek Kaul
On This Day - 16 October 2015
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One-rank one-pension - An economic analysis of an emotional issue A  A  A

- By Vivek Kaul

Vivek Kaul
I have been quoting a lot from the writings of British economist John Kay in my recent columns. The reason for that is very straightforward. I have read two very good books Other People's Money - Masters of the Universe or Servants of the People and Everlasting Light Bulbs - How Economics Illuminates the World written by him over the last two weeks. A lot of what Kay writes is very relevant for the times that we live in. And given that I have ended up quoting him over and over again. Today will be no different as well.

In an essay called A Fetish for Manufacturing which is a part of Everlasting Light Bulbs, Kay talks about an article he wrote in 1980. In this article he predicted that the British manufacturing would decline due the growth of North Sea oil production. Kay doesn't explain the reason behind his prediction in the essay I am talking about and honestly, it is not important, given the point I am trying to make.

After the article was published there was a lot of controversy around it. As Kay writes: "Few critics focussed on the weakness in the argument. They claimed instead that what I was saying ought not to be true or, if it was true, ought not to be said."

After a point, Kay started to understand "that for many people the role of manufacturing industry was an emotional issue rather than an economic one." The phrase I want you pay attention on is that, "it was an emotional issue rather than an economic one".

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Something similar is playing out in India right now - the issue of one-rank one-pension for India's armed forces. When an individual retires from the armed forces, he gets a pension. The pension amount depends on the date of retirement. Up until very recently, there was no ‘one-rank one-pension' in the armed forces. This essentially meant that individuals who retired at the same rank and had served similar number of years, did not receive the same pension, if they retired at different points of time.

Given this, an individual retiring in 2004 would get a lower pension than the one retiring in 2006, despite having retired at the same level and having served for a similar number of years.

It also needs to be mentioned here that a bunch of armed force personnel retire in their mid to late 30s and unlike the general segment of the population do not get benefits of a full-pay until the retirement age of 58 to 60.

The armed force veterans have been demanding one-rank one-pension for a while now. It was one of the key promises that Narendra Modi made during the campaign for the last year's Lok Sabha elections.

On September 5, 2015, the ministry of defence announced one-rank pension for the armed forces. As the press release said: "In simple terms, one-rank one-pension implies that uniform pension be paid to the Armed Forces personnel retiring in the same rank with the same length of service, regardless of their date of retirement. Future enhancements in the rates of pension would be automatically passed on to the past pensioners. This implies bridging the gap between the rate of pension of current and past pensioners at periodic intervals."

And given that it took close to sixteen months for the Modi government to come up with anything concrete on the issue, it is not surprising that the issue has turned into an emotional one. Individuals who defend the borders of India, need to be treated better, is an oft-repeated argument.

The government estimates that "to implement OROP, the estimated cost to the exchequer would be Rs. 8,000 to 10,000 crore at present, and will increase further in future."

The question is can the government afford this? Let me make a slight deviation before getting back to the question.

I have been reading through this interesting book called The Challenge of Things-Thinking Through Troubled Times, written by the British philosopher AC Grayling. In one of the essays in the book titled Does the Government Know Best, Grayling writes: "Much of the debate about levels of welfare spending concern how much security should be provided, not whether or not it should be provided. The consensus in question is that the state has welfare responsibilities; the arguments are almost always about how much should be spent in discharging them."

So this brings us back to the question whether the government can afford this? And if yes, how much should it spend on it? The total budgeted expenditure of the government for the current financial year stands at Rs 17,774,77 crore. Rs 8000-10,000 crore is around 0.45-0.56% of that expenditure. Hence, if looked at in isolation, one-rank one-pension is clearly affordable for the government.

Nevertheless, the thing is that it won't stop at just armed forces. As a report in The Asian Age points out, the Central paramilitary forces also want one-rank one-pension. This includes the Border Security Force, the Central Reserve Police Force, the Central Industrial Security Force, the Indo-Tibetan Border Police and Sashastra Seema Bal.

These forces are responsible for our borders as well as security within the country. They tackle the naxal threat as well in large parts of the country. So how can they be left out of one-rank one-pension? I think that is a fair question.

The Asian Age reports that the Central paramilitary forces have a strength of nearly nine lakh serving personnel and six lakh retired personnel. I haven't come across any clear thinking by the government on this issue.

It doesn't stop here. The PTI reports that the railwaymen also want one-rank one-pension. As the newsreport points out: "Railway employees are now asking for similar pension benefit, arguing that their duties too are "hazardous, risky and complex". In a letter to Prime Minister Narendra Modi, National Federation of Indian Railwaymen has demanded uniform pension policy for railway employees. "On an average, 800 railway employees get killed per year in the course of duty and nearly 3,000 sustain injuries at work," M Raghavaiah, general secretary of NFIR, said."

Saurabh Mukherjea and Sumit Shekhar of Ambit point out in a research note that the "cost of salaries/pensions for railway employees is 2.7 times the cost of salaries/pensions of the armed forces". Railways currently employs nearly has 13 lakh individuals.

Once all these factors are taken into account one-rank one-pension suddenly starts to look like an expensive proposition.

The question is will the government be able to stop after the armed forces? I don't think so. And how will they finance this?

As John Kay (Oops I am quoting him again) writes in an essay titled How We Decide which is a part of Everlasting Light Bubbles: "Big decisions in politics and businesses are the result of political horse-trading, and are based on partial information, visions and prejudices, hopes and fears."

The feeling I get is that people in decision making positions haven't thought through the issue at the level they should have. In the years to come other government agencies will also demand one-rank one-pension and they are more than likely to get it.

Rest assured, you will hear more about one-rank one-pension in the years to come.

Watch this space.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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46 Responses to "One-rank one-pension - An economic analysis of an emotional issue"

Lt Col P V Dikshit

Nov 9, 2015

The writer has not done his home work.The problem began in 1973 when pension of soldiers, who were getting their pension as 70% of their salary,was brought down to 50%,civilians pension upgraded to 50% from 33% with a rider that qualifying service will be 25 years. Most of the soldiers retire after 15 to 17 years of service,it brought them down to mere 33% of salary at retirement..This was a gross injustice to soldiers... CAPF serve upto 60 years of service.Comparing them with Army is just non sense.. This writer is a paid stooge of Arun Jaitley mis guiding public at large...What a shameless piece of writing....

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NN Verma

Oct 21, 2015

Dear Mr Kaul,
At the outset I suggest people like you to do little home work before embarking on a subject unknown to you. In brief I shall try to educate you as follows:
1. 1971 After historical military victory of India and capturing about a lakh POWs in a campaign (a world record of sort) babus are convinced that that was the last war. Consequently,
2. In 1972 the Pay Commission (not represented by Armed Forces at all) rewarded them with reduction of pension payable to Warriors from 70% until then to 50%. At the same time increasing the Babus pension from 30% to 50%.
3. the promotional structure of Babus is cylindrical where as for the warriors it is steep pyramidal. Consequently, more than 50% are compelled to retire due to supercession/ no carreer progression. Only 5-7% make it to Joint secretary level whereas 95% of Babus make it to JS or equivalent. You will not understand the rank structure of Warriors hence I leave it simple.
4. You need to study the working condition of Warriors vis-à-vis Babus.
5. In successive Pay Commissions (None of them represented by Warriors) the package was reduced for the warriors and substantially enhanced for Babus.
6. You must study the NFU (Non Funtional Upgrade) to Babus and Paramilitary Officers. Almost all of them get the highest Pension of their senior most peer and It is reviewed every year.
7. Major Dhanapalan (Retd) fought the case of Rank Pay implementation(You may not understand it hence I shall omit it here)from lower courts to Supreme Court winning at all courts. Babus fought tooth and nail to scuttle it and sat on the verdict for many years until Honorable SC passed an stricture to Babus. Alas our Netas had independent and just views and sincere to warriors.
8. OROP has been fought in various courts for over 38 years and SC gave its verdicts in favour of the warriors. Babus kept the verdict cold storage for many years by various Apeals and yet another appealTill SC refused to entertain any more. This was followed by our both the Parliament Houses (unanimously)ratifying the Definition of OROP recommended by Koshiary Commitee. Who are the Babus to re-interpret the Parliament Resolution.
9. Warriors are simple, straight thinking men and sincere to Nation and ready give their life. You may wish to give your own opinion for both, the warriors and Babus. The warriors maintained all the discipline required in a democracy to express their dissent. But Babus chose to tear off their coveted medals proudly mounted on chest, in full view of public, only to humiliate them as they were perceived to be a security threat.
10. PM, as a simple and straight thinking man, gave an commitment to warrior to honour the SC and Parliament verdicts and implement it. Babus are still fighting tooth & nail to satisfy their ego as well for face saving for being exposed to cunning recommendations and implementation in successive past Pay Commissions.
11. You have already received more education from other commentators.
12. Have the guts to correct yourself after thorough study and if you are bold enough, you will write an editorial once again on the subject with honest and just views.
13.I have only given you the a gist of otherwise voluminous subject
13 Good Luck to you.

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V Durgaidass

Oct 18, 2015

Let’s get the facts right. The Indian Armed Forces are voluntary forces. There is no conscription. Men and women join the forces as jawans or officers for a variety of reasons and, among them, is the security of a job. While the job is reasonably secure, it is not a job for the entire working life. According to the report of the Koshiyari Committee, 85% of the Armed Forces personnel retire by the age of 38 years and another 10% retire by the age of 46 years. They have to work for a living for many more years, but there is no guarantee of a post-retirement job.
Retirement at an early age is good and necessary to keep the forces young and fighting fit. Hence the case for an honourable pension.
There is another reason to make pension an attractive term of service that has not been noticed adequately: it is to attract new volunteers. The attrition rates, and the vacancy levels, are alarmingly high and, if the Armed Forces have to remain voluntary forces, recruitment must remain robust. The promise of an honourable pension is an important factor in recruitment.
OROP is an honourable pension. The time to debate the merits and demerits of OROP is over. It was a decision taken by the UPA government and reiterated by the NDA government. These words are of former Finance minister P Chidambaram's.

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VA Mendonsa

Oct 18, 2015

The article by Shri.Vivek Paul is very well written. From the present dispensation it is seen that a Senior Officer who retired from any public sector undertaking years back would be drawing lesser pension that even a sub-staff who retires after several years. The cost of household requirements have increased manifold and in the present environment, a sub-staff is better off than a General Manager who retired in the 90's or around. Simple example of cost could be seen from the prices of Dal which have sky rocketed or even Onion prices, which are the basic necessities in any Indian household. Under the present pension system, the General Manager should be satisfied with 10gms dal and one single onion(to be used at least in two dishes) whereas a sub-staff could perhaps afford 50gms dal and half a kilo of onions.
The govt talks of cost factor when it comes to social security measures whereas when it comes to doubling the salaries of the MP's and MLA's, there is unanimous verdict and absolutely there is no opposition! what a paradox.

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R V Subramanian

Oct 18, 2015

Good article.
Thought provoking.
Politicians, in power, are intent upon feeding inflation in their quest to satisfy the unreasonable demands of their constituencies !

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Vinod

Oct 18, 2015

Vivek

while not going int validity of your arguments , your entire thought process is looking like Indian frogs, where one deserving case is pulled down by "Me too" cases. There is irrefutable distinction that large part of armed forces people retire young as it is requirement of organisation.Basic Principle of OROP is to compensate for that where soldier is left to feed for oneself so early , with little financial standing and skills to look after one's family for long years of life ahead. In all other services one gets to serve till the age of sixty irrespective of rank . All this includes all the pay revisions which come along the way. On financial terms a individual in para military forces , railways costs much more to Govt in term of pay and allowances as well as in pension.

Where will your future military leadership and soldiers will come from when you see past ones operating autos,standing as chowkidars or running kiranas.

Vinod

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Praveen

Oct 17, 2015

Hi,

There are lot of hollow & unrelated "book" references but there is no substance in the article. The article does not talk about whether OPROP should be given or not on its merits. The article just says that OROP should be an "economical issue" rather than an "emotional issue". It makes a case about how OROP is financially not feasible.

Talking about the economics, the article does not even touch on inflation or the cost of living. The article doesn't mention what Govt. is trying to do with contributory pensions schemes and how the govt. pensions liability would change in future.

Regards.

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Siddhartha Guha

Oct 17, 2015

The main factor to be considered for other paramilitary forces is that are they retiring after full quota of service or after limited service like the defence personnel. If not then there is no cause for them to ask for more. The underlying reason is the babus in the Govt, the civilians who got this benefit under the guise of Pay Commission and who do not deserve to get this at all. Let their benefit be curtailed and distribute the same to the defence.

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pkpk

Oct 17, 2015

V..k, you b..t..d. What do you know about military - you money counting frog?

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SANJAY ANAND

Oct 17, 2015

Vivek kindly understand the issue of OROP in detail & then comment. The condition of Armed forces can not be compared with others due to their service conditions & an early retirement age. There is lot of material available on OROP kindly go through that & you will understand why it should be applicable only for Armed Forces.

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