INVC NEWS
New Delhi : The Reserve Bank of India (RBI) recently issued an important advisory to states, advising them to reconsider the idea of reinstating the traditional pension scheme. This guidance comes hot on the heels of the RBI’s latest deep dive into state finances, detailed in their annual report released on December 11, 2023. The report paints a picture of fiscal fortification for states in the fiscal years 2022-23 and 2023-24, showcasing a notable strengthening of state treasuries and effective control over fiscal deficits.
The RBI’s analysis shines a light on the continuing upswing in states’ financial health, with a bright outlook for the ongoing fiscal year. However, it’s not all smooth sailing. The report identifies significant hurdles ahead, with the potential reintroduction of the Old Pension Scheme (OPS) marked as a particularly thorny issue. The RBI’s document, titled ‘State Finances: A Study of Budgets of 2023-24’, paints a stark picture: should states universally revert to OPS, the financial strain could multiply significantly, dwarfing the burden of the New Pension Scheme (NPS).
Digging deeper into the report, the RBI highlights a concerning trend: the reintroduction of OPS could lead to an additional fiscal load of up to 0.9% of the GDP by 2060. States like Rajasthan, Chhattisgarh, and Punjab have already gone down this path, and Karnataka is mulling over a similar decision. The RBI views this move as a step backward, potentially undoing the progress made through previous reforms and placing a heavy load on the shoulders of future generations. The report also predicts that the last group under OPS might retire in the early 2040s, with pension payouts stretching all the way to 2060.
As elections loom, the RBI isn’t just cautioning against the allure of OPS as a vote-catcher. It’s also throwing a spotlight on the need for states to think creatively about boosting their revenue streams. The central bank’s suggestions include considering increases in registration fees and stamp duties.
Moreover, the RBI is nudging states towards strengthening their tax administration. By improving tax collection and reducing evasion, states can significantly enhance their financial health. The report also advises a closer look at levies on properties, excise, and automobiles, alongside a clampdown on illegal mining activities as effective strategies for revenue enhancement.”
