New Delhi: Reserve Bank of India on Monday issued a warning on returning to the old pension scheme by some states, saying it poses a major risk on the “subnational fiscal horizon” and would result in the accumulation of unfunded liabilities in the coming years for them.
“A major risk looming large on the subnational fiscal horizon is the likely reversion to the old pension scheme by some states. The annual saving in fiscal resources that this move entails is short-lived,” said RBI in its report titled ‘State Finances: A Study of Budgets of 2022-23.’
The observations in the RBI’s Report come in the backdrop of Congress-ruled Himachal Pradesh becoming the latest state to announce reverting to the Dearness Allowance (DA) linked OPS.
Earlier, the governments of Rajasthan, Chhattisgarh, and Jharkhand informed the central government and the Pension Fund Regulatory and Development Authority (PFRDA) about their decision to restart the OPS for their employees.
In the report, the RBI has noted that improvement in the fiscal situation across states as well as a recognition of the off-budget borrowings, something that the Union finance ministry had taken up with the state governments.
The RBI has suggested states should focus on higher capital expenditure, arguing that it benefits the state GDP for at least two years.
It went on to suggest setting up of capex buffer funds, where money is set aside during “good times” when revenue flows are strong so that spending is not impacted during periods of economic slowdown.
(With Agency Inputs)