The Conundrum of the Pension System in India: A Comprehensive study in the context of India's Growth Story

TL;DR

This paper analyzes India's pension system, focusing on the shift from the Old Pension Scheme to the National Pension System, its implications for economic growth, and stakeholder perspectives amid rising elderly population and fiscal challenges.

Contribution

It provides a comprehensive analysis of India's pension reforms, highlighting the features, stakeholder claims, and economic implications of the NPS compared to the OPS.

Findings

NPS aims to reduce government pension liabilities.

Several states have exited the NPS to revert to OPS.

The pension reforms are crucial for India's economic growth goals.

Abstract

India is the largest democracy in the world and has recently surpassed China to be the highest-populated country, with an estimated 1.425 billion (approximately 18% of the world population). Moreover, India's elderly population is projected to increase to 138 million by 2035. Indian economy is already reeling under the pressure of exorbitant pension liabilities of the government for existing pensioners. As such, India has introduced a National Pension System (NPS), which is a Defined Contribution Scheme for employees joining government service on or after 1st January 2004, bidding adieu to the age-old, tried and tested Old Pension System (OPS) which is a Direct Benefit Scheme, in vogue in India since the British Raj. This is an epoch-making move by the government as it seeks to inculcate Disciplined Saving among the people while significantly reducing the government burden by reducing the Pension Liabilities of the Central and State Governments. This paper aims to analyse various features and intricacies of the NPS and address the claims of various stakeholders like the Central Government, State Government, Employees, Pensioners, etc. In light of the above, and taking cognisance of the fact that many states such as Rajasthan, Chattisgarh, Jharkhand, etc, have exited the NPS scheme and have sought back their share of NPS employee and employer contribution, this study is relevant to address the current economic and fiscal issues of India to propel towards the ambitious goal of becoming a $ 5 trillion dollar economy by 2025. Keywords: Old Pension Scheme (OPS), National Pension System (NPS), Direct Benefit Scheme, Defined Contribution Scheme, Pension Liabilities.