{"id":233141,"date":"2023-03-21T19:15:33","date_gmt":"2023-03-21T13:45:33","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=233141"},"modified":"2023-03-21T19:15:33","modified_gmt":"2023-03-21T13:45:33","slug":"schemes-like-ops-will-only-exacerbate-the-gap-between-richer-and-poorer-states","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/schemes-like-ops-will-only-exacerbate-the-gap-between-richer-and-poorer-states\/","title":{"rendered":"Schemes like OPS will only exacerbate the gap between richer and poorer states"},"content":{"rendered":"

<\/p>\n

Source<\/span><\/b>: The post is based on the article \u201c<\/span>Schemes like OPS will only exacerbate the gap between richer and poorer states\u201d <\/span><\/b>published in \u201c<\/span>The Indian Express\u201d <\/span><\/b>on <\/span>21st March 2023<\/span><\/b>.<\/span>\u00a0<\/span><\/p>\n

Syllabus: <\/span><\/b>GS 3 – Indian economy <\/span>\u00a0<\/span><\/p>\n

Relevance<\/span><\/b>: Issues related to fiscal federalism<\/span>\u00a0<\/span><\/p>\n

News:<\/span><\/b>\u00a0Recently, there are demands in some states to implement OPS. Some states like Himachal and Rajasthan have implemented it.<\/span>\u00a0<\/span><\/p>\n

What are the differences between centre and states over fiscal autonomy?<\/span><\/b><\/h2>\n

States want to make their own decisions such as the type of pension scheme, the <\/span>freedom to decide welfare programmes <\/span><\/b>and so on.\u00a0<\/span>\u00a0<\/span><\/p>\n

But, states neither have the <\/span>financial resources <\/span><\/b>to implement their decisions nor the <\/span>freedom to mobilise finance<\/span><\/b>s on their own. They are <\/span>dependent on the Centre<\/span><\/b> for resources.\u00a0<\/span>\u00a0<\/span><\/p>\n

This is responsible for the current standoff between the Union government and states over various issues such as <\/span>\u201cfreebies\u201d versus welfare, reversion to the old pension scheme, and imposition of conditions for financial grants on states<\/span><\/b>.<\/span>\u00a0<\/span><\/p>\n\n\n\n
Must read: Comparison of National Pension Scheme with Old Pension System \u2013 Explained, pointwise<\/a><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

What are fiscal issues related to the implementation of the Old Pension Scheme by some states?<\/span><\/b>\u00a0<\/span><\/h2>\n

The poor financial condition of states:<\/span><\/b> States such as Rajasthan, Punjab, Himachal Pradesh, Chhattisgarh, Jharkhand and Bengal want to implement the old pension scheme (OPS).<\/span>\u00a0<\/span><\/p>\n

But large states such as Maharashtra, Tamil Nadu, Karnataka and Gujarat are resisting pressure from their government employees to revert to OPS<\/span>\u00a0<\/span><\/p>\n

Paradoxically, states that want to implement OPS have much <\/span>higher debt levels (40% of GDP) <\/span><\/b>than the states that are reluctant to switch to OPS (22%).\u00a0<\/span>\u00a0<\/span><\/p>\n

Punjab has a debt of<\/span> 48% of GDP<\/span><\/b>. It spends nearly <\/span>one-fifth of its income<\/span><\/b> on just pensions for government employees.\u00a0<\/span>\u00a0<\/span><\/p>\n

When these states spend so much of their income on pensions, they will not have enough resources to cater to the<\/span> basic needs of the remaining population<\/span><\/b>. It forces them to <\/span>borrow more money.<\/span><\/b>\u00a0<\/span><\/p>\n

States that are implementing OPS do not have the <\/span>financial strengt<\/span><\/b>h<\/strong> for it. They are dependent on the Centre to provide funds either through devolution of taxes collected from other states or by borrowing and lending.\u00a0<\/span>\u00a0<\/span><\/p>\n\n\n\n
Read more: State elections and the troubling return of the old pension scheme<\/a><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The financial gap between states<\/span><\/b>: Just four large states; Maharashtra, Tamil Nadu, Karnataka and Gujarat are <\/span>net contributors to the Union government\u2019s tax pool<\/span><\/b>. Most other states are <\/span>net takers.\u00a0<\/span><\/b>\u00a0<\/span><\/p>\n

When the Punjab or Himachal government claims it has the right to decide on OPS, it is actually <\/span>paid for indirectly<\/span><\/b> by the future generations of people in Maharashtra, Gujarat, Tamil Nadu and Karnataka through the Union government.<\/span>\u00a0<\/span><\/p>\n

The purpose of such redistribution is to <\/span>close the gap<\/span><\/b> between these states over time. But, the <\/span>gap between the \u201cnet giving\u201d and the \u201cnet taking\u201d states<\/span><\/b> has only increased.\u00a0<\/span>\u00a0<\/span><\/p>\n

For example, the gap between the debt levels of states that have implemented OPS vis-\u00e0-vis the states that have resisted OPS has increased from <\/span>13% in 2003 to 20% of GDP in 2023.\u00a0<\/span><\/b>\u00a0<\/span><\/p>\n

This pattern of the richer states giving and the needier states taking more and more over time without closing the gap is <\/span>unsustainable and dangerous<\/span><\/b>. Profligate schemes like OPS will only exacerbate the gap between the richer and poorer states.<\/span>\u00a0<\/span><\/p>\n

At some point, the richer states will start to question the <\/span>efficacy of such redistribution<\/span><\/b> and the need for them to continue to <\/span>fund regressive schemes<\/span><\/b> in poorer states.\u00a0<\/span>\u00a0<\/span><\/p>\n\n\n\n
Read more: Why the Old Pension Scheme is both bad economics and bad politics<\/a><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article \u201cSchemes like OPS will only exacerbate the gap between richer and poorer states\u201d published in \u201cThe Indian Express\u201d on 21st March 2023.\u00a0 Syllabus: GS 3 – Indian economy \u00a0 Relevance: Issues related to fiscal federalism\u00a0 News:\u00a0Recently, there are demands in some states to implement OPS. Some states… Continue reading Schemes like OPS will only exacerbate the gap between richer and poorer states<\/span><\/a><\/p>\n","protected":false},"author":10311,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10500],"class_list":["post-233141","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1703258398},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/233141","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10311"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=233141"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/233141\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=233141"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=233141"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=233141"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}