One Rank, One Pension highlights need to reduce pension bill

By Ajai Shukla

17th Aug 15

(Truncated version of this article is in Business Standard)

Political pundits and the media focused keenly on Independence Day on whether Prime Minister Narendra Modi would grant “One Rank, One Pension”, or OROP, to retired soldiers, sailors and airmen. The defence ministry’s Department of Ex-Servicemen’s Welfare says India has 22,50,000 military pensioners (hereafter referred to as veterans), and there are another 6,00,000 widows of veterans who are entitled to lifetime pensions. Assuming conservatively that each pensioner has a family of four, over a crore voters would directly benefit from OROP. This is a significant political constituency, especially in Punjab, Haryana, Himachal Pradesh and Uttarakhand.

The money involved is significant too. This year’s budget allocated Rs 54,500 crore for defence pensions; this would rise by about 40 per cent with the additional Rs 18-20,000 crore needed to meet all the veterans’ demands. India does not count military pensions in the defence budget; even though pensions, like salaries, are a component of manpower costs. The full grant of OROP would raise military pensions to Rs 75,000 crore, only slightly less than the salary bill of Rs 93,216 crore.

What exactly does OROP involve? In essence, it means that all veterans who retired at the same rank should get equal pension, irrespective of when they retired, because they performed the same functions whilst in service and must make ends meet in the same economic conditions today. Currently, each veteran gets a pension that is half the salary he drew on the date he retired. Since military salaries have steadily risen, as determined by six successive “pay commissions” (the Seventh Pay Commission is currently deliberating another increase), veterans who retired earlier get significantly lower pensions than those who retire today.

The demand for OROP goes back to the Third Pay Commission in 1973. However, this is the first time the veteran community has organised itself so publicly. Occupying the emotional high ground --- not difficult in a country where the military is loved and respected --- veterans have signed letters in blood, returned gallantry and service medals and staged public dharnas (sit-ins), including a few hundred metres from Parliament in New Delhi. Largely siding with the veterans, the media has lambasted the government for tarrying in making good its promises. Criticism continues even after Mr Modi assured veterans on Independence Day that discussions were in their final stages and OROP would be paid out shortly.

These unprecedented public protests have their roots in late 2013, when the Bharatiya Janata Party (BJP), and its chief election strategist, Amit Shah, targeted the veteran constituency as a vote bank. Addressing ex-servicemen at a September 2013 rally in Rewari, Mr Modi promised his government would implement OROP. With the veteran community naturally biased towards the BJP’s right-wing politics and tough talk on Pakistan and terrorism, ex-servicemen rallied strongly behind Mr Modi, believing that OROP would be quickly implemented.

Meanwhile, the United Progressive Alliance (UPA) government --- staring at electoral defeat --- also promised early implementation of OROP, even allocating Rs 500 crore in its “vote-on-account” in February 2014. This, it turns out, was a token sum, as was the Rs 1,000 crore the National Democratic Alliance (NDA) government allocated in its first budget in July 2014.

The dimensions of the problem became evident to the NDA government once the defence and finance ministries began doing their sums. A key question related to when OROP should be implemented from. Implemented prospectively the payout would be Rs 10,000 crore; implemented from early 2014, when it was announced, twice that amount would be needed.

Given the fiscal buffer provided to the government by low oil prices, the financial blow could be absorbed. However, given the bitter inter-service rivalry between the military and the Indian Administrative Service (IAS) officials who man key positions in the defence and finance ministries, officials have raised alarmist questions about the spill-over effects of OROP, and the prospect of other services, especially “central armed police forces” (CAPF) like the Border Security Force and the Central Reserve Policy Force also demanding OROP.

For many veterans, the delay in OROP reflects a more serious and longer-standing conspiracy between civil servants and politicians to whittle away the relative status of the armed forces. This is evident from a letter written by four well-respected former chiefs --- General SF Rodrigues, Admiral L Ramdas, Admiral Arun Prakash and Admiral Sureesh Mehta --- who wrote to President Pranab Mukherjee that the scuttling of OROP is “the culmination of a process by which successive Pay Commissions have been used to whittle down the financial and protocol status of the military over the years vis-à-vis their civilian counterparts”.

This grudge will remain even after the full grant of OROP, which now seems a matter of time. What must be addressed, however, is the key issue highlighted: the military’s growing manpower costs. It has been earlier recommended that, instead of recruiting soldiers, sailors and airmen for 15 years and then paying them pensions for life, recruitment should be for just 5-7 years, after which trained personnel are laterally absorbed into CAPFs, where easier service conditions allow them to serve till the age of 55-60 years. This would make for a younger army, and also reduce the growing pension liability.