Addressing a section of the media, Defence Minister Manohar Parikkar announced the implementation of the 'One Rank One Pension (OROP)' scheme. The decision comes after 83 days of protests by ex-servicemen who intensified their agitation at Delhi's Jantar Mantar, after they felt the government was dilly-dallying over the issue.
It was expected Prime Minister Narendra Modi would make the announcement in his Independence Day speech on August 15, but last minute negotiations failed. Agreeing with the principle of OROP, PM Modi asked for more time to settle the issue.
OROP implies uniform pension for Armed Forces personnel retiring at the same rank with the same length of service, irrespective of their date of retirement, with future enhancement in the rates of pension to be automatically passed on to the past pensioners.
The 10-member parliamentary panel, known as the Koshyari Committee, set to look into the issue in 2011, explained OROP as a scheme that seeks to bridge the gap between the rates of pension payable to current pensioners and past pensioners.
The committee pointed out that in the Armed Forces, equality in service has two components, namely, rank and length of service. The importance of rank is inherent in the Armed Forces, as it has been granted by the President of India and signifies command, control and responsibility in consonance with the ethos of service. These ranks are even allowed to be retained by the individual concerned after his/her retirement. Hence, two armed personnel at the same rank and with equal length of service should get the same pension, irrespective of date of retirement.
In other words, this means is that Armed Forces personnel should get the benefit of changes in salary even after their retirement. Thus, if an officer retires as a Major, his salary level will be linked to that of a Major who retires 10 years after he does.
Why OROP is necessary
This logic of OROP might sound absurd to someone who is in a civilian job, specially in the private sector. However, armed forces are given special benefits as 88% of military personnel retire between 35 and 37 years of age. The 90% who remain, retire when they are 54-56 years old. These personnel have given their best years to safeguard the nation and when they leave, they often find new job opportunities hard to come by. Had they joined any other profession, they could have risen in their respective jobs but since the country needs a young armed force, it has to compensate for the years in which they are still employable but not allowed to be a part of the forces. If there is no security of their future, few would be willing to sacrifice their youth and life in the service of the nation.
What was stopping OROP?
The shaky relationship between the armed forces and bureaucrats had made it difficult for the issue to be settled amicably. Even the Koshyari Committee blamed the delay in implementing OROP on bureaucratic delays and apathy. In order to understand why bureaucrats were not willing to clear OROP, we will have to go back in history.
The OROP existed till 1973. As per the Third Central Pay Commission (CPC) in 1973, the pensions for Armed forces were aligned to those of civilian employees. Before the implementation of CPC recommendations, the pensions of armed forces and civil servants were 70% and 30%, respectively, of last pay drawn. This was to compensate for the compulsory early retirement of the armed forces as compared to the civilians. However, in the Third Pay Commission, the pension percentage was made equal for both.
ALSO READ: Flak over OROP
This resulted in salaries of armed forces being reduced by 30% and pension by 20% in 1973. The armed forces blamed the pay cut on bureaucrats who increased their own salaries and perks while holding on to their job for full 60 years of service.
The bureaucrats complicated the matter by creating salary bands and giving pension based on these bands. Sorting out these issues delayed the implementation of OROP.
Srinath Raghavan, senior fellow at Centre for Policy Research, New Delhi, points out that the bureaucracy's institutional position between the military and the political leadership has been problematic all along. And its stance on OROP has been perceived as inimical to the armed forces' interests.
General V P Malik, who led India to victory in the Kargil war, tried to mediate in the matter at the request of the Prime Minister’s Office (PMO), but walked out of the negotiations within 48 hours. General Malik said "..the definition of OROP has been accepted earlier. The point is whether whatever was defined will be implemented."
What are the financial implications of implementing OROP?
According to defence analyst Ajai Shukla, the full grant of OROP would raise annual military pensions to Rs 75,000 crore, only slightly less than the salary bill of Rs 93,216 crore. However, Parrikar in his statement pointed out that the cost would be Rs 10,000 crore initially and would increase going forward.
The main point of contention between the government and veterans was the base year for calculation of OROP. The government wanted to take 2011 pay scales as the base year, while the veterans wanted 2014. The change in cut-off dates would not only mean salary differences but also the number of personnel who would benefit. The economic difference between selecting the two dates would be between Rs 4,000-Rs 6,000 crore. Finally the government contended to the demand and agreed to the 2014 date.
From a financial standpoint, the issue questions the very logic of pensions. Normally an employee pays for future pension through his salary when he is employed. The pensions that veterans are getting today are from the saving they did during their employment. But if OROP is implemented and veterans get salaries based on the present level, then the incremental pension will not be coming from their saving but will be a direct cost on the government. It will be like a subsidy which the government pays to its veterans.
Furthermore, every time the pay commission announces a salary increase, the governments outgo will increase. For government OROP becomes a cost for which it will have to provide for a huge sum. As Ajai Shukla points out this year’s budget allocated Rs 54,500 crore for defence pensions and this would rise by about 40%.
The UPA government had allocated Rs 500 crore for OROP and FM Jaitley provided Rs 1,000 crore for the same in his first Budget. However, no government has been thinking in terms of Rs 18-20,000 crore incremental cost.
Pending contentious issue
While making his announcement, Defence Minister said that on the issue of premature retirement a one-member committee would be formed. The veterans have rejected this and said that they need a bigger committee and a bigger representation in it.
The ministry has clarified that those injured during their service and thus forced to take premature retirement will be covered under OROP.
However, there are other officers and jawans who take premature retirement. These are servicemen who are not promoted and have to work on the same rank till their compulsory retirement. Many servicemen (approximately 40%) opt to take premature retirement rather than work under their junior. Veterans want that these servicemen should also be covered under OROP.