Indian economy is strengthening amid weak global prospects, RBI gives big warning on Old Pension Scheme
RBI Bulletin: The country’s top bank Reserve Bank of India has said in its bulletin that amidst weak global prospects, the Indian economy is strengthening. RBI has claimed that the country’s economy is getting stronger due to public sector capital expenditure along with domestic private consumption and fixed investment. Along with this, the states will also have to implement the new pension scheme (NPS) instead of the old pension scheme (OPSStates have been warned of huge financial costs if implemented. It is noteworthy that this statement of the Reserve Bank regarding pension has come at a time when the main opposition party of the country is talking about implementing it in every state. On the other hand, a committee has also been constituted by the Central Government to give suggestions on changes in NPS. Along with this, pension is also an issue in the assembly elections and Lok Sabha elections to be held in many states.
What did the bank say on the state of the economy
An article published by the RBI in its bulletin on the state of the economy says that the outlook for the global economy remains uncertain, driven by contradictions in macro-economic conditions across sectors. According to the article, expectations of Goldilocks (ideal state of the economic system) are gaining momentum in America, while there are concerns about slowdown in China and Europe. According to this, the impact of aggressive monetary tightening is spreading and the services sector has also become a part of the decline in the pace of housing, bank lending and industrial production. According to the article, India’s G20 presidency and its outcomes, with the vision of Vasudhaiva Kutumbakam as a vision for global progress, assume significance in an environment where global economic activity is losing momentum with conflicting macro-economic conditions across sectors. Is going.
Supply related reactions are improving in the country
The Reserve Bank has said that amid weak global prospects, the Indian economy is gaining strength due to domestic drivers like private consumption and fixed investment along with strong public sector capital expenditure. Supply-side responses are improving and core inflation also declined in August from its high a month earlier. This article has been written by a team led by RBI Deputy Governor Michael Debabrata Patra. However, the central bank said that the views expressed in the article are those of the authors and do not represent its views. Describing India’s space efforts as important for the country’s socio-economic development, the article said the space industry has contributed significantly to the country’s defense and security in addition to weather forecasting, geological and oceanographic studies, disaster management and agriculture. Has also played an important role. The successful space missions of Chandrayaan-3 and Aditya L1 are also mentioned in the RBI Bulletin article.
OPS will take states back: RBI
The Reserve Bank claimed in its article that the implementation of the Old Pension Scheme (OPS) is a step backwards. Due to this, the financial condition of the states may become unstable in the medium to long term. Top bank officials, Rachit Solanki, Somnath Sharma, RK Sinha, SR Behera and Atri Mukherjee, said in their article that the total financial burden in case of the old pension scheme could be up to 4.5 times that of the New Pension Scheme (NPS). . The new pension scheme was implemented as part of pension reforms more than a decade ago. The views expressed in the research paper are not those of RBI. Recently Rajasthan, Chhattisgarh, Jharkhand, Punjab and Himachal Pradesh have announced to shift from NPS to OPS. OPS has defined benefits (DB), while NPS has defined contributions (DC). While OPS has short-term attractiveness, there are also medium to long-term challenges.
Financial funds of states will be unstable
RBI has claimed in its article that short-term cuts in pension expenditure of states could motivate decisions to restore OPS. This cut will be offset by a huge increase in future unfunded pension liabilities in the long run. Whereas, states returning to OPS would be a major step and could increase their fiscal pressure to unsustainable levels in the medium to long term. It said that the immediate benefit for states going back to OPS is that they will not have to spend on NPS contributions of current employees, but unfunded OPS in future is likely to put severe pressure on their finances.
There will be huge pressure on GDP by 2040
The apex bank’s article said states’ return to OPS could reduce annual pension expenditure by more than a third of GDP by 2040.GDP) will save only 0.1 per cent annually, but after that they will have to spend more on pension equal to 0.5 per cent of annual GDP. It added that many developed economies with DB schemes in the past have faced rising public expenditure due to the rising life expectancy of their citizens, and the changing demographic landscape and rising fiscal costs have led many economies around the world to reevaluate their pension schemes. Is forced to review from.
