Agnipath scheme: A burgeoning pension bill is the govt's big headache

Since the government announced its Agnipath scheme — a four-year contractual employment for youth in the armed forces — protests have erupted in parts of the country. Protesters feel cheated as the scheme would ensure permanent employment for only a quarter of those completing the four-year tenure.

The government argues that Agnipath will make the armed forces younger and leaner, as contractual employment saves money. In 2022-23, India will spend Rs 5.3 trillion on defence: 22.8 per cent of this would be for pension payments — down from 26.4 per cent spent on pensions in 2020-21. Pension payments cost the armed forces nearly as much as salaries.

The pace of growth of pensions is another matter. A Business Standard analysis found that defence pensions grew 15.9 per cent annually between 2013-14 and 2020-21. Meanwhile, the salary bill expanded at a compound annual growth rate (CAGR) of 8.8 per cent, as the defence budget grew 9.7 per cent.

Pensions accounted for a third of the revenue expenditure on defence.

The pension bill is rising for other parts of the government, too. Analysis of Budget data shows that in 2020-21, pensions accounted for 6.8 per cent of the central government’s revenue expenditure. This year, they are set to account for 6.5 per cent. While the central government’s spending on pensions grew 15.7 per cent between 2013-14 and 2020-21, its revenue expenditure expanded only by 12.3 per cent. Between 2017-18 and 2022-23, salaries will grow 7.2 per cent, but spending on pensions will increase by 9.6 per cent.

State governments seem better placed. Analysis of data from the Reserve Bank of India (RBI) shows that states’ wage and salary bills grew faster than pensions. While spending on pensions grew 12.3 per cent between 2013-14 and 2020-21 (revised estimates), the revenue expenditure expanded by 12.7 per cent. Pensions were a tenth of states’ revenue expenditure.