SOURCE :
DEFENCE PENSIONS
DEFUSING
THE PENSION
BOMB
BY
SANDEEP UNNITHAN
A LEAKED DEFENCE MINISTRY NOTE PROPOSING PENSION CUTS TRIGGERS CONTROVERSY. BUT WITHOUT MAJOR REFORMS, THE INDIAN ARMED
FORCES’ PENSION PROBLEM IS UNLIKELY TO DISAPPEAR
ver the past 11 months, India’s first Chief of Defence
Staff (CDS), General Bipin Rawat, has opened many
fronts in the battle for reform. He has attempted to
bring down military expenditure, create new joint
commands and encourage jointmanship among the
forces. All of these are part of his mandate to create
a leaner, meaner military. The Department of
Military Affairs (DMA), which he heads within the
MoD (ministry of defence), is responsible for ‘all major aspects of armed
forces functioning’—this includes the organisation, recruitment, training
and terms and conditions of service for personnel, as well as career
management of all ranks of service members.
However, some of his proposals, though well-meaning—like cutting
down on ceremonies and the number of officers’ messes in peace stations—have attracted scorn from service members and turned into social
media flamebait. Yet nothing has created as much discontent as the
proposal to increase the retirement age of Indian Army personnel and to
slash defence pensions. Among other changes, the proposal suggests the
retirement age for colonels be increased from 54 to 57, brigadiers from
56 to 58 and major-generals from 58 to 59. The DMA wants a similar
increase in retirement ages for personnel in the navy and air force as well.
Another proposal is that officers who retire prematurely should get
only a percentage of the stipulated pension: for instance, those with 26
to 30 years of service would get only 60 per cent and those with 31 to 35 years of service would get only 75 per cent of entitled premature retirement pensions (see Ballooning Pensions). Only
those officers retiring with over 35 years of service would get
full pensions. The calculated savings from this proposal have
not been made public, but the objective is clear; the government wants to bring down the armed forces’ pension bill.
The reason is not hard to see—this year, for the first time in
the history of independent India, the government will spend
more on paying pensions than on purchasing military hardware. In a nutshell, this year’s defence budget allocates Rs 1.3
lakh crore to defence pensions and Rs 1.1 lakh crore to buying
military hardware like fighter jets, tanks and warships.
The proposal, which was leaked on social media, triggered a tsunami of protests primarily among (but not
confined to) the military veterans’ community. One former
army commander, who asked not to be named, described it
as a “nutty proposal”, while a former deputy chief of army
staff went further, calling it “harebrained”
‘As it is, [a career in the] military is the last option for the
youth,’ wrote Major Gen. Satbir Singh, chairman of the IESM
(Indian Ex-Servicemen Movement), in a letter to defence minister Rajnath Singh on November 7. ‘Introducing further
downgradation, degradation, demotivation and demoralisation policies will seriously damage the efficiency and effectiveness of our military.’ The DMA’s logic has been questioned by
the armed forces themselves. A leaked briefing note, purportedly for navy chief Admiral Karambir Singh, says the proposal has the potential to wreck the service as a career option
and could cause a trust deficit within the armed forces.
This also turns the armed forces’ human resources policy
on its head. A steep and narrow promotion pyramid in which
only 30 per cent of officers get to the rank of colonel has led
to a policy of allowing officers who don’t make the cut to leave
the service. If the proposal to reduce pensions is implemented, it could lead to a ‘greying’ of the armed forces—officers
will likely choose to stay longer despite the lack of promotions
to claim pension benefits, rather than choosing to retire early
and making way for a younger lot.
THE TICKING PENSION BOMB
The defence budget, tabled in Parliament on February 1
this year, had some startling facts. The defence ministry’s Rs 1.33 lakh crore allocation for pensions was 28 per cent
of the total budget. Over the past decade, defence pensions
have seen the fastest growth in percentage terms of any
component in the budget, outstripping even the growth in
what the government spends on buying military hardware.
The obvious solution—to hike the defence budget—seems
unlikely in the present pandemic- and lockdown-induced
downturn where the economy is projected to contract by
10.3 per cent this year. (Defence makes up 15 per cent of the
central government’s expenditure and is the second largest
head after interest payment liabilities.)
This explosive growth in the pension bill can be traced
back to a single decision taken exactly five years ago. In
November 2015, the government announced the implementation of OROP (One Rank, One Pension), which mandated
equal pensions for equal ranks, irrespective of the date of
retirement. A promise made in the BJP’s 2014 manifesto,
OROP was implemented after street protests staged by the
military veterans’ community. Military analysts now say it
has caused the most egregious harm to the defence budget.
The pension bill has more than doubled from Rs 55,000
crore in 2015 to Rs 1.33 lakh crore in 2020-21. India has
3.2 million pensioners and dependents and only 1.6 million
ex-servicemen. Pension outlays, as the last defence budget
showed, are now increasing faster than the component for
buying new military hardware like warships, planes and
tanks. The government has pressed the pause button on its
OROP promise of revising defence pensions every five years.
The 2019 revision of pension scales, which would have seen
it fork out an additional Rs 8,000-10,000 crore each year, has been put on hold by the government.
A paper published in March 2020 by research scholar
Laxman Kumar Behera at the Manohar Parrikar Institute of Defence Studies and Analyses says the increase in
pension costs in the defence budget has come at the cost of
capital procurement. The share of defence pensions, pay
and allowances has gone up from 49 per cent in 2011-12 to
61 per cent in 2020-21. The share of capital expenditure has
declined from 36 per cent in 2012 to 25 per cent in 2020-
21. ‘The fast rise in pension expenditure has a significant
crowding out effect on stores and modernisation, two major
components that determine a nation’s war-fighting ability.
Needless to say, this does not augur well for India’s defence
preparedness,’ Behera’s paper says.
Gen. Rawat, meanwhile, seems unfazed by the opprobrium that his proposal has attracted. “We are more concerned
about the wellbeing of the frontline combatant soldiers who
face the real hardships and on whose courage and valour we
all seem to be basking in,” he told India Today TV on November 5, adding that it was the “technically qualified personnel
within the armed forces” who were unhappy with such proposals. This echoes
what the DMA proposal says—that
specialists and super-specialists trained
for highly skilled tasks leave the service
to work in other sectors. “The loss of
such high-skilled manpower results in
a void in the service skill matrix and is
counterproductive.”
However, an undated briefing note
from naval headquarters provides
the clearest reasons why the DMA
proposal could be unimplementable. It
warns that the proposal could lead to
a trust deficit within the armed forces.
The circular, also leaked on social media, says it could ‘end up setting a dangerous and avoidable
precedent’ and that it could have worrying implications for
moves like enhanced jointmanship and theatre commands
(part of the CDS’s mandate). This method of reducing expenditure does not make mathematical sense, the paper says,
because it could lead to the government retaining officers at
full salary levels for longer periods of time—for an additional
16 years in the case of colonel-ranked officers—rather than
retiring them early and paying them half their salary as
pension. The briefing note says the DMA proposal, if implemented, could not only adversely impact the living standards
of retired officers but also affect the navy’s ability to attract
and retain talent. However, the biggest reason why the proposal could be unimplementable is that it opens the armed
forces up to a barrage of litigation by changing the terms and
conditions of service in the armed forces. In a similar vein,
the New Pension Scheme (NPS), which paid a lump sum to
retiring civilian government employees instead of a lifelong
pension, was introduced in 2004. The government found it could not be applied retrospectively to existing pensioners, only to those who had entered the service after the rules
were changed. It would also be difficult for the government
to slash defence pensions for armed forces personnel without
doing the same for their civilian counterparts.
THE FAST RISE
IN PENSION COSTS
HAS REDUCED RESOURCES AVAILABLE
FOR STORES AND
MODERNISATION,
TWO COMPONENTS
THAT DETERMINE
A NATION’S WAR
FIGHTING ABILITY
THE WAY AHEAD
The government’s pension burden is unlikely to go away
anytime soon. This is because India’s manpower-intensive
armed forces have only worsened their pension costs in the
recent past—India’s armed forces are the only major fighting force in the world that are increasing personnel numbers
instead of reducing them. The Indian Army, with 1.3 million soldiers, is the world’s second largest, and it continued
to add soldiers until 2015, when the government paused
recruitment for the Army’s Mountain Strike Corps. The new
corps envisaged adding 90,000 soldiers—all of whom will
have to be paid pensions on retirement.
Some cosmetic changes have been made in the name
of reducing manpower—shutting down military farms, for
instance—but these have not altered
the skew of the armed forces towards
manpower over military equipment.
In countries with large militaries, like
the US, pensions are a major spend,
but the bulk of US military personnel
do not qualify for pensions, because
nearly 80 per cent serve short terms.
In sharp contrast, Indian officers are
on permanent commissions and make
up over 80 per cent of the force, going
on to see over 20 years of service.
In terms of reforms, the armed forces have paid lip service to options like
short service commissions, in which
officers and men serve for periods that
do not qualify them for pensions. Proposals made by the sixth
pay commission in 2006 to absorb retiring army personnel
into the central police forces could have ensured the government retained a portion of its trained manpower rather than
sending them home early as pensioners. These were not
implemented because of opposition from the home ministry.
The solution could lie in policies like the NPS, which was
implemented for all government servants (except armed
forces’ employees) in 2004. Under the NPS, government
employees contribute towards their own pensions from their
monthly salaries, with a matching contribution from their
employers. Pension fund managers then invest these funds
in earmarked investment schemes. The entire corpus is
handed over to an individual at the time of retirement, free
of tax. Army officials say that the NPS could be an attractive
option instead of a monthly pension. But these are long-term
proposals whose effects would be felt after over a decade. In
the absence of holistic long-term solutions to the problem,
short-term kneejerk responses could be the order of the day.
