Mains Article

Defence Pension Reforms [Mains Article]

Pensions in armed forces share a major chunk in the Defence budget allocation. The revenue expenditure is hurting India’s defence preparedness, plans of acquisition and modernisation of Armed forces.
By IT's Mains Articles Team
April 01, 2020

Contents

  • Introduction
  • Outlay in the Defence Budget
  • Pension Budget
  • Concerns
  • Reasons for hike in Pension Budget
  • Hurting Modernisation
  • Recommendations
  • Conclusion

Defence Pension Reforms

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Introduction:

The allocation for defence pension has shot up by a significant 13.6 per cent to Rs 1.33 lakh crore in the Union Budget 2020-21, even though the overall capital budget allocation for the armed forces has seen a marginal increase of just 3 per cent, or Rs 3,400 crore.

Outlay in the Defence Budget:

  • The total defence budget this financial year, including pensions, stands at Rs 4.71 lakh crore.
  • Excluding pensions, the defence budget has just increased by 1.82 per cent.
  • The capital outlay for the Army has increased 10.3 per cent, while that for the Navy has risen 2 per cent. The outlay for the Indian Air Force, meanwhile, has decreased by 2.3 per cent.
  • Defence pensions, including those for civil employees of the defence ministry, are higher than the pay and allowances for the services, which stand at Rs 1.17 lakh crore.
  • Pensions constitute 28 per cent of the overall expenditure of the defence ministry, even higher than the Rs 1.13 lakh crore earmarked for new acquisitions and modernisation of the armed forces.
  • The Army is the most manpower-intensive service of the three with strength of 13 lakh personnel, and the pension allocation for it is Rs 1.13 lakh crore.
  • For the Indian Air Force and the Navy, the figures stand at Rs 0.13 lakh crore and Rs 0.072 lakh crore respectively.

Pension budget:

  • Ministry of Defence’s pension budget caters to a number of retirement benefits, which include service pension, family pension, commutation, gratuity, leave encashment, monetary allowance for gallantry awards and arrears due to court judgements.
  • Among these categories, pension (service pension and family pension) constitutes the bulk expenditure, accounting for 76 per cent of the total expenditure on defence pensions in 2018-19.
  • As of April 2019, pension is provided to around 3.24 million pensioners of which 2.59 million or 80 per cent are retired military personnel or their dependants and 0.60 million or 19 per cent are defence civilians and their dependants.

Concerns:

  • Every year, a substantial number of defence personnel retire from the active service in the armed forces. Between 2011-12 and 2013-14, the number of retirees has increased from 49,827 to 57,507, an increase of 15 per cent.
  • On an average every year three categories of retirees – Sepoys, Naiks and Havildars and their equivalents – together constitute over 70 per cent of the total retirees from the armed forces.
  • Since the defence forces personnel begin their career early and also retire at a relatively young age than their civilian counterparts, a greater number of retirees are 60 years of age or less.



  • A simple calculation would show that the net increase in defence pensioners in the next 15 years would exceed today’s total number of civilian pensioners.

Reasons for hike in Pension Budget:

  • There are a number of reasons for the exponential growth in defence pension, which includes the implementation of the recommendations of the successive Central Pay Commissions (CPCs) and the One Rank One Pension (OROP) scheme, which has been implemented with effect from July 2014.
  • The main contributing factor behind fast growth in the pension budget has, however, been the change in colour service which was affected twice in the 1960s and the 1970s.
  • In 1965, the colour service for the vast majority of Personnel Below Officers Rank (PBORs) was increased from seven to 10 years, mainly to support rapid expansion of the army in the aftermath of the 1962 war with China. Again, in 1976, it was increased from 10 to 17 years.
  • This change led to almost every retiree becoming eligible for a pension, in comparison to nearly 35 per cent who were eligible for a pension before 1965.
  • This has also caused a quantum jump in the number of military pensioners with due effect on the pensionary expenses.

Hurting Modernisation:

  • The share of the defence pension has increased the most, and together with Payment and Allowances accounts for 61 per cent of the MoD’s total budget in 2020-21, up from 49 per cent in 2011-12.
  • The entire increase in the pension’s share has come at the cost of the capital procurement.
  • The fast rise in the pension expenditure has a significant crowding out effect on the stores and modernisation, two major components that determine nation’s war-fighting ability.
  • This does not augur well for India’s defence preparedness and is hurting Military acquisition and modernisation plan of Armed forces.
  • The capital budget for the military, which is used for new acquisition and modernisation, has seen an increase of just 3 per cent, or Rs 3,400 crore, over the revised estimates.
  • In the 2020-21 budget, an amount of Rs 1,13,734 crore has been earmarked under capital expenditure.
  • The capital allocation to the IAF, which is in the midst of buying nearly 200 new fighter aircraft, has actually been lowered from revised estimates of Rs 44,869.14 crore to Rs 43,281.91 crore.
  • Navy has been forced to rework its plans to become a 200-ship strong force by 2027 due to cash crunch. According to its new plan, the Navy is now aiming to be a 175-ship strong force by then, despite the growing endeavours of China in the region.

Recommendations:

  • The Kargil Review Committee set up in 1999 under the chairmanship of late K. Subrahmanyam emphasised the imperative of containing the defence pension, especially that of the Army.
  • Since the Army pension bill has risen exponentially since the 1960s, it is becoming an increasing burden on the national exchequer.
  • The army must be young and fit at all times, the committee had advised for a drastic reduction of the colour service to a period of seven to 10 years from 17 years, which had been the policy since 1976.
  • The reduction in colour service, argued the committee, would not only improve the age profile of the army but also reduce the pension cost.
  • But, it is difficult to cut down on defence pensions, as they are a factor in motivating defence personnel to serve in difficult conditions.
  • More than 20 years after KRC made its recommendation; a view is yet to be taken by the government.
  • The government is still seeking out pension reforms and looking for solutions to counter the burden of pension and the problems associated.

Conclusion:

Reforming defence pension is no more an option but a compulsion considering its exponential growth in the past, which will continue in the future if no reform is undertaken. It is therefore, important to recognise this and find a sustainable solution to it. Any reform initiative taken now will start showing effect much later, possibly after a decade. However, the cost of doing nothing will have a far greater debilitating effect on India’s hard capability development.

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