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Mar 24, 2023

One-Time Payment of OROP Arrears Could Have Had Fiscal Implications: FinMin

The Supreme Court has agreed to the government clearing dues in three equal installments by February 28, 2024, which has come as a breather for the finance ministry.
A protest demanding OROP. Credit: PTI/Files

New Delhi: The finance ministry had raised concerns over its inability to pay arrears for One Rank One Pension (OROP) in a single installment and said it could have had fiscal implications. The Supreme Court, however, agreed to the government clearing dues in three equal installments by February 28, 2024, which has come as a breather for the ministry.

The question of paying arrears in a single installment came after a January order of the Union government, which had said that the OROP arrears would be paid in four half-yearly installments, was challenged by a group of ex-servicemen. They demanded the arrears to be paid in one installment.

On March 13, the Supreme Court came down heavily on the government for “unilaterally” deciding that OROP dues would be cleared in four installments.

Later, on March 20, it asked the Union government to comply with its 2022 judgment on the payment of OROP arrears to ex-service personnel and asked it to pay dues for 2019-2022 worth Rs 28,000 crore by February 28, 2024.

Paying the OROP arrears in one installment could have had fiscal implications, a senior finance ministry official told the Indian Express, requesting anonymity.

“Our revised estimates were prepared with the OROP being paid in installments. This decision to pay OROP in installments is in our assumption of our revised estimates on borrowing. Any change to this principle would have entailed abnormal borrowing after the borrowing for the year has closed. The government expressed its concerns on the inability to pay the OROP arrears in one installment without fiscal implications,” said the person.

A person aware of the matter told the newspaper that the pensions under OROP get revised every few years, unlike other pension or government payout revisions, which get revised only during the Pay Commission. That’s why OROP pensions are becoming a significant financial cost to the government.

The person cited above added that the pension expenditure of the defence ministry has been more than 20% of the ministry’s budget over the last five years, with pension payments growing at an annual rate of 12% between 2013-14 and 2023-24.

In December 2022, the government approved the revision of the OROP pension with effect from July 1, 2019. The decision will benefit around 25 lakh pensioners, including over 4.52 lakh new beneficiaries.

However, according to the defence ministry, the decision will result in an additional annual expenditure of Rs 8,450 crore.

As a standard practice, as has been seen in earlier instances of Pay Commission-related payouts or the initial OROP rollout, any large lumpsum payment gets distributed in installments to manage cash flow. Any change in government’s market borrowing now to accommodate upfront payment of arrears would have impacted market yields, which are also seen as crucial for states’ borrowings, the finance ministry official cited above said.

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