The Hindu Business Line : States for continuity in pension reforms

So far, barring trade unions, most States have welcomed the setting up of the pension fund regulatory authority. This authority is yet to begin functioning.

States want these reforms to be structured in such a way so that they would be in a position to reduce their mounting pension expenditure. Pensions currently comprise at least 15 per cent of the net revenue expenditure. For some States, these liabilities are as high as 25-30 per cent per annum.

Total pension payouts by all the States including the Union Territories are currently in the region of Rs 40,000 crore. These liabilities were exclusive of other payouts such as gratuity benefits.

Since the beginning of the decade pension liabilities of State Governments have risen at an annual clip of about 10 per cent or almost double the growth rate of State Governments' revenue receipts.

Pensions, salaries, interest and subsidies are the major load points on the state revenue receipts.

In fact, pension outflows are currently one of the major factors, contributing to high fiscal deficits of the States.

States such as Karnataka, pursuing power sector reforms, have absorbed pension liabilities of power utilities as part of the cleaning up exercise. This in turn has resulted in escalation of the pension liabilities.

The sources said most States would like to convert these unfunded liabilities into funded ones. They would prefer to have pensions structured on the same lines as in the case of the Indian Railways, where the pensions are charged to gross revenues.

Converting pensions into a funded liability would substantially reduce the liquidity problems faced by the state finances, the sources added.

As a result, the sources said that most States preferred continuity with the reforms in the pensions undertaken by the NDA Government for fiscal correction.