One Rank One Pension is finally a reality, again. More than 43 years after the formula for calculating pensions for those retiring from India's armed forces was terminated, Defence Minister Manohar Parrikar announced that it was being reinstated. With the model code of conduct likely to be in place soon because of upcoming elections in Bihar, Parrikar made the announcement on Saturday, claiming the government has decided to implement the scheme "despite the huge fiscal burden".

 


OROP, as it is commonly known, is the idea that veterans' pensions will not be determined by their rank or the date on which they have retired.

"In simple terms, OROP implies that uniform pension be paid to the Armed Forces personnel retiring in the same rank with the same length of service, regardless of their date of retirement," Parrikar said during his announcement.

Crucially, this means that any changes to pension amounts would have to apply to all living veterans, a detail that could mean a heavy burden on the government, particularly since many Armed Forces personnel retire between the ages of 35 and 40.

The fine print

Here are the details that Parrikar announced:

*OROP benefit will be calculated with effect from July 1, 2014, that date being picked since it comes right after the Bharatiya Janata Party came to power in May last year.

*Arrears, which are expected to cost between Rs 10  thousand crore to Rs 12 thousand crore, will be paid in four half-yearly installments, except for widows who will receive the entire lump sum at once.

*To start off with, OROP will be based on the pension formula as of 2013, with pensions re-fixed, based on the average of minimum and maximum pension for each rank in that year. Those drawing above-average pensions would be protected.

*This one is crucial: Personnel who voluntarily retire will not be covered under OROP

*Thereon, pension will be refixed every five years.

Parrikar also made a couple of other announcements. The key one acknowledges that there are still lots of other issues to be ironed out, including differences between the services and the interests of different retirees across ranks. The defence minister announced a one-member judicial committee aimed at figuring out these matters, with a report expected in the next six months.

What it means

A few things are expected to come out of this.

The first is the response of the veterans themselves. OROP had become the rare issue over which India's armed forces personnel had openly commentated and even agitated over, with many retired officials insisting that a failure to implement it risked politicising the military.

Its announcement will come as a relief, but the protesting veterans are not entirely happy with the formula offered: They were demanding an adjustment of pensions every two years and for OROP to be extended even to those who take voluntary retirement. Immediate reaction following the announcement suggests the agitation might continue.


Next, there's the fiscal question. Arrears alone are expected to be a massive expenditure and there's the question of continuing to implement OROP for the foreseeable future. Previous governments' inability to announce OROP was primarily because of this and the defence minister acknowledged that it will cost thousands of crores to pay for these pensions. For a government that is very committed to a fiscal tightrope, this will have to mean a relook at spending elsewhere.

Finally, there's the bandwagon. Finance Minister Arun Jaitley, who reluctantly conceded the need for OROP (considering his party did put it in the manifesto), has insisted it is a special outlay for military personnel. This is because similar demands from other government employees would make fiscal decisions even harder, with indications that groups like the Railway workers already raising their voices on the matter.

OROP might have finally been announced, but the story could just be beginning.