On August 4, the Union Cabinet approved yet another modification to the National Pension System (NPS), the scheme applicable to 23 lakh Central government employees who joined service on January 1, 2004, or later. The NPS, which was earlier called the New Pension Scheme as it replaced the Old Pension Scheme (OPS), has also been adopted by most State governments and autonomous bodies receiving government funding. Employees under the NPS are now being offered the Unified Pension Scheme (UPS) as an “improvement” on the NPS, with the scheme coming into effect from April 1, 2025.

Those who joined before January 1, 2004, are covered under the OPS. The announcement came as a surprise because it was only in February that the Ministry of Personnel, Public Grievances and Pensions held a review meeting on the operationalisation of the NPS Oversight Mechanism, established in 2019. The government went out on a limb to defend the NPS and explain why the OPS was unviable. 

Within six months, everything seems to have changed. The employees’ demand to restore the OPS, combined with upcoming elections in three States and one Union Territory as well as byelections in Uttar Pradesh, appear to be the reason for the about turn. But the government is yet to notify it.

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Last year, the non-BJP-led governments in Rajasthan, Himachal Pradesh, Chhattisgarh, Jharkhand, and Punjab informed the Central government and the Pension Fund Regulatory and Development Authority that they were reverting to the OPS. The Congress’ election manifesto for the Lok Sabha and Assembly elections clearly stated that the OPS would be restored.

Barring the BJP’s own affiliate mass organisations, there has been little or no support for the UPS. No political party has openly opposed it, but their trade union affiliates have. Large sections of employee associations are not in favour of the UPS, and that is one reason why the government, too, has been rather quiet after announcing the Cabinet decision.

NPS woes

Government employees had three main objections to the NPS: First, it was a contributory scheme, where the government transferred half the responsibility for funding their “pension” to the employees themselves; second, as a market-linked scheme, retirement benefits became subject to the vagaries of financial markets; and third, the investment of the corpus (or a part of it) in an annuity did not offer returns that were indexed to inflation.

According to employees’ organisations, the NPS did not offer financial security for old age. On its part, the Centre from time to time made modifications to the NPS aimed at increasing post-retirement benefits. For instance, the government contribution to the pension corpus was raised from 10 per cent of the salary of employees to 14 per cent, and death-cum-retirement gratuity was also made payable to those under the NPS.

In April 2023, the Centre set up a “Committee to Review the Pension System for Central Government Employees”, headed by Finance Secretary T.V. Somanathan. The UPS is supposed to be based on the recommendations of this committee, though its report has not been made public yet. The committee is supposed to have consulted State governments, representatives of employees, associations, the RBI, and others. Its recommendations were discussed with employee representatives through the national council of the Joint Consultative Machinery (JCM).

Under the UPS, the government proposes to raise the employer’s contribution to 18.5 per cent and also offer a lump sum payment on retirement in addition to the gratuity. The key assurance is that the government will guarantee that the pension of an employee will be at least half the average salary in the last 12 months of service, subject to a minimum service of 25 years (with a proportionate reduction for those with a service duration between 10 and 25 years, subject to a minimum pension of Rs.10,000 a month). The UPS also offers a minimum family pension to the spouse of a deceased employee/pensioner. Besides, the assured minimum pension will be indexed to inflation by the provision of dearness relief.

Government employees do not appear to be satisfied with the UPS, though. Whether or not it will be an “improvement” on the NPS depends on the details, which are still under wraps. What is clear from what is available in the public domain is that employees’ contribution to their pension fund will remain. Moreover, the amount that can be withdrawn as a lump sum will be lower than even that under the NPS because the government will be splitting up its contribution of 18.5 per cent to the corpus. In the UPS, the government’s contribution will be only 10 per cent of the employees’ salary (as against 14 per cent in the NPS). The additional 8.5 per cent of the government’s contribution will be placed in “a separate pool corpus” and will not be part of the individual pension fund of the employee. The UPS also does not offer the possibility of pension increasing when pay scales of current employees are revised.

The new proposals will mean an additional expenditure annually for the government. Also, since the government has promised to make up any “shortfall” from the assured minimum pension in the annuity returns earned by individual pension funds, additional expenditure may be incurred unless the pool corpus earns enough to cover such a shortfall. These financial implications of the UPS have meant that many votaries of the NPS, who believed that the OPS was financially unsustainable, now see the UPS as a step back in pension reforms.

Some economists point out that it was the shift to the NPS in 2004 that contributed to increasing pension-related expenditures of governments. That shift had no implications for the expenditure on pensions of those who were pensioners then, those who have become since, and many of those who will become in the years to come (as long as they joined service before January 1, 2004).

On the other hand, virtually none of the 26 lakh employees (including employees of Central autonomous bodies) of the Central government Sector or the 66 lakh of the State government sector who came under the NPS have retired from service yet and many will not for years to come. Indeed, the first employees who could claim the minimum assured pension under the UPS will retire only in 2029. The government might have “saved” in terms of future pension payments of these employees, but in the past 20 years, it has had to spend an additional amount as its contribution to their pension funds. Had the OPS been retained, it would have had to pay only retired employees from its budgetary resources.

A senior representative of the All India Bank Officers’ Confederation said: “Our GDP is growing at a rate of 6-7 per cent as the government claims. On the other hand, the number of Central government employees is decreasing year on year. The load on the UPS has already come down. Pension is rarely updated, only DA is applied on it.” He added: “The government argues that the pension load has increased. The Rs.10,000 [minimum monthly pension] is coming from our own contribution. Under the Atal Pension Yojana for every citizen, people get Rs.5,000 by contributing. Under the UPS, the government says at least we will get Rs.10,000 if we contribute 10 per cent. It is a joke. It is not at all a unified scheme. It is a misnomer. At best, it can be called the Modi-fied NPS.”

He claimed that from what has been issued so far, the UPS is worse than the NPS. He explained: “We are saying that whatever we are contributing we should get back. What if the spouse is no more, what happens then? The contribution is gone. No lump sum is paid at the end of the scheme, and even when the person is superannuating, five to six months of salary will be given. In the OPS, one gets a lump sum or one can opt for commutation. Under the NPS, there is some assurance of a lump sum even though it is market linked. People can get good returns if the market performs well but there is no assurance.”

Rejecting claims that the Somanathan Committee had consulted representatives of employee associations and organisations, he said that only select trade unions and a few organisations representing employees were consulted. Neither the Finance Ministry, the Somanathan Committee, nor the Prime Minister had approached many of the organisations or different sectors. Even in the Central government, not all employee organisations were consulted, he said. “No one from the banking sector was invited for the consultations,” he added.

Prem Chand, general secretary of the Indian Public Service Employees’ Federation, expressed surprise that the Congress, having declared the restoration of the OPS, was now saying that it would take a decision after seeing the Somanathan Committee report. 

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Prem Chand said that at least 10 organisations had decided, along with the leadership of the JCM, to make the restoration of OPS a national demand. But there was a lot of dilly-dallying by the JCM leadership. “We left the front and formed an Old Pension Restoration Front and finally a big rally was held in Delhi for the OPS on October 1, 2023. We have demanded that the Somanathan committee report be made public. So far, only portions have been leaked. The JCM is a 60-committee membership of which 26 are from the railways. It is not a democratic body even though it is a permanent negotiation mechanism. A full meeting of the JCM has also not been held. An internal committee was formed for consultations with the government,” he said.

Penny wise, pound foolish

According to information available in the annual reports of the Department of Personnel and Training, the number of pensioners of the Central government increased from around 37 lakh in 2005 to almost 54 lakh in 2013 and to over 69 lakh by 2022. The Central government expenditure on pensions, on the other hand, as revealed in the Union Budgets, increased almost 17 times, from around Rs.14,000 crore in 2002-03 (before the NPS) to nearly Rs.2,42,000 crore in 2022-23. This was despite the transition to the NPS. However, this was still less than 6 per cent of total Central government expenditure, and only a fraction of the country’s national income, said employees and dismissed the contention that the OPS was unsustainable.

Again, going by Union Budget figures, the establishment strength of the Central government (excluding defence personnel) was 33.17 lakh in 2003, but in 2023 it was just 31.67 lakh. The only component that has grown is the government’s police forces, whose strength has increased from 6.59 lakh to 10.45 lakh over the same period. In addition is the rise in the proportion of contractual employment, which creates no pension entitlements. The real question then is, What effect does the government’s attempts to reduce expenditure on its employees have on the quality of the services it provides? Even the strength of departments dealing with revenue mobilisation has been reduced. This, employees say, may be a case of the government being penny wise and pound foolish. 

In recent weeks, the NDA government has selectively rolled back a few decisions, the most crucial one being the proposal to induct officers at the level of Joint Secretary, Deputy Secretary, and Director through a “lateral entry” system. Other climbdowns include the withdrawal of the Draft Broadcasting Services (Regulation) Bill and the referral of the Waqf (Amendment) Bill to a joint parliamentary committee. These instances have led to the belief that the government has paid heed to the counsel of its coalition partners and the opposition, but the U-turn on lateral entry appointments indicates that this could be a misplaced perception.

The Annual Report (2022-23) of the Department of Personnel and Training (DoPT) states that “lateral recruitment is an initiative of the government to achieve the twin objective of bringing in fresh talent as well as augmenting the availability of manpower at middle management levels by appointing persons, at the level of Joint Secretary, Director and Deputy Secretary, for specific assignments keeping in view their specialised knowledge and expertise in their domain area. A total of 36 officers comprising 09 Joint Secretaries, 18 Directors and 09 Deputy Secretaries, appointed through Lateral Recruitment, are in position in various Ministries/ Departments. The list includes 30 officers who were selected during 2021, comprising three Joint Secretaries, eighteen Directors and nine Deputy Secretaries.”

On August 17, the Union Public Service Commission (UPSC) issued a notification, for the second time in less than three months, inviting online applications for lateral recruitment to 45 posts in the three Group A categories of Central government jobs. The contract or deputation was for three to five years, and the deadline for submission was September 17. Candidates needed to have 15 years of work experience for the post of Joint Secretary, and 10 years and 7 years for the Director and Deputy Secretary posts, respectively. Those eligible to apply were officers of States/Union Territories working at equivalent levels and with the requisite experience and individuals in comparable levels in public sector undertakings, autonomous bodies, statutory organisations, universities, recognised research institutes, private sector companies, consultancy organisations, and international and multinational organisations. The advertisement did not provide for any reserved category posts.

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The UPSC issued a similar notification in June for 17 posts in the Group A category. All were for recruitment of candidates belonging to the category of people with “Benchmark Disability”.

Although the government had inducted officers through a similar process in 2018, this was the first time the UPSC was notifying the positions and not the DoPT.

On the back foot

The government appeared to be on the back foot as opposition parties and the ruling party’s own allies, especially the Janata Dal (United) and the Lok Janshakti Party (Ram Vilas), objected to it on the grounds that it militated against the principles of social justice.

Within four days of the notification, a letter from the office of Jitendra Singh, Minister of State, DoPT, was sent to UPSC chairperson Preeti Sudan asking her to cancel the advertisement. Before taking over as UPSC chairperson in July following the abrupt resignation of Manoj Soni, Sudan had officiated as Secretary, Health, and held other important portfolios.

Apart from implying that the UPSC had acted on its own, Singh’s letter went on to extol the Prime Minister’s deep resolve to adhere to the principles of equity and social justice. The process of “lateral entry must be aligned” to those principles, especially the provisions concerning reservation, the Minister’s letter said.

Obviously, the BJP could not afford to be seen as “anti-reservation” with elections to three State Assemblies and one Union Territory around the corner. The UPSC chairperson was just the fall guy. The letter reminded the UPSC chairperson that “reservation in public employment is a cornerstone of our social justice framework, aimed at addressing historical injustices and promoting inclusivity” and “it is important that the constitutional mandate towards social justice is upheld so that the deserving candidates from marginalised communities get their rightful representation in the government services”. The letter further reasoned that as these were single-cadre posts, there was no provision for reservation in these appointments, adding that “this aspect needs to be reviewed and reformed in the context of the Hon’ble Prime Minister’s focus on ensuring social justice”.

In a veiled attack on the Congress, the letter mentioned that lateral entry was endorsed by the Second Administrative Reforms Commission constituted in 2005 and chaired by Veerappa Moily, implying that the NDA government was only carrying on something the previous government had initiated. The Sixth Pay Commission (2013) had also recommended the same, the letter pointed out, stating that “both before and after, there have been many high-profile cases of lateral entrants”. What the letter failed to mention, however, was that these high-profile cases were of people with distinguished careers in their fields who were appointed as secretaries or advisers to the government.

What senior bureaucrats say

A few senior bureaucrats Frontline spoke to were of the unanimous opinion that lateral entry at the levels of Joint Secretary, Deputy Secretary, or Director would make no value addition at all.

According to the retired bureaucrat E.A.S. Sarma, successive governments adopted the lateral entry route to bypass reservation on the premise that it ran counter to the idea of “merit” and “expertise”. Other devious ways adopted, he told Frontline, include contract employment, outsourcing, public-private partnerships, and privatisation of Central Public Sector Enterprises. “Since 1991, in the guise of ‘reform’, successive governments have progressively shrunk the size of the public sector to circumvent reservation,” he said.

Sarma said that providing SC, ST, and OBC reservation was a constitutional obligation that both the United Progressive Alliance and NDA governments had violated. He explained that the role of a Joint Secretary in a ministry was different from the role of an “expert” recruited from outside. A person in that position was expected to ensure that a proposal processed in a ministry was consistent with the relevant laws, aligned with the government’s formally adopted policies for that sector, and upheld the values of the Constitution—tasks for which a specialist may not be particularly suitable. He added that lateral entry could be justified for certain key roles, such as Chief Economic Adviser, or advisers in ministries related to mining, petroleum, and chemicals, and in the NITI Aayog and other think tanks. Any first entry, he said, should be subject to reservation.

“Contextually, the recent moves on the part of the government to nominate civil services to function as rath prabharis [incharge] before elections to promote a personality cult, lifting the six-decade ban on civil servants joining the RSS and loading important public institutions with persons selected on the basis of their ideological bias, have rendered the move to recruit Joint Secretary-level officers laterally particularly dubious. I am glad the government dropped the proposal under pressure,” Sarma said.

M.G. Devasahayam, another retired civil servant and a former Army officer, said that the Indian Administrative Services was created with “the idea that the best talent, best brains must come up to hold the country together through a common interest. The IAS has no central cadre. Its officers are recruited and trained by the government of India and are sent to the States. They bring together the experiences of the entire country. They are expected to reflect the pulse of the country.” He cited how he, although belonging to Tamil Nadu, served as an officer in the Haryana cadre.

According to him, lateral entry was not always undesirable. He pointed to V. Krishnamurthy, former CEO of BHEL, SAIL, Maruti Udyog Ltd, and GAIL; the agricultural scientist M.S. Swaminathan; the technocrat R.V. Shahi; and the economists Montek Singh Ahluwalia and Manmohan Singh, all of whom joined at senior levels.

The trouble, said Devasahayam, started in 2018, when the DoPT put out an advertisement to recruit 10 Joint Secretaries and a few Deputy Secretaries. Despite opposition, the recruitment took place. In 2019, the DoPT began recruiting 450 officers at the levels of Joint Secretary, Deputy Secretary, and Director; this was close to 60 per cent of the strength of the Central government personnel at that level. Despite opposition from within and outside, some 63 people were inducted. “Now they want to bring in 45 more. This has reduced direct recruitment from the IAS,” he said.

According to Devasahayam, if specialists are required they can be recruited from within the cadre. There are highly technical people in the IAS with specialisations. Any person in the corporate sector with similar years of experience might not know enough about governance, he said. There was a worry that private sector people inducted through lateral recruitment would initiate policies favourable to certain corporate entities. The second danger, Devasahayam said, was the induction of a large number of people from the RSS, more so after the ban had been lifted on government servants joining the organisation.

While there is no harm in bringing specialists, there are brilliant IIT and IIM graduates in the IAS, and the government could create a special cadre from within. “Have specialisations but do not dilute,” he said. “How can one expect a person coming from the corporate sector to coordinate with the States? There is no gain in this kind of lateral entry.”

According to Devasahayam, lateral entry at a certain level is fine, but it cannot be a regular recruitment process. “Is it so difficult for the government to find a few persons from the reserved categories? It will find a few names aligned to its ideology and may not even fill the posts as is the case already with the Central government. The opposition parties have not seen through the game. The advertisement will be issued again; this time with provisions for reservation. But the posts will remain vacant,” he said.

Officers on deputation

The other issue is to get commitment from such lateral appointees. An officer on deputation or contract might not have a stake in the job; three years is too short a time. “I think the idea is to recruit their favourite corporate people and those who missed the bus for the IAS,” said Devasahayam. “They will be ‘conferred IAS’ just as State service officers are done. Only 60 per cent are direct recruits in the IAS; others are ‘conferred IAS’. Those recruited from the pool of State Administrative Officers and State Public Service Commissions are ‘conferred IAS’. Lateral entry will be for those who can’t come in through the front door.”

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K. Sujatha Rao, former Union Secretary, Ministry of Health and Family Welfare, agreed. “The government should have proposed lateral entry at very senior policy levels, the way Manmohan Singh or Montek Singh Ahluwalia were inducted. But such eminent people have to be invited, not recruited through the UPSC.” Rao added that to make up for shortage of personnel, the government should increase the intake at the UPSC entrance level and, in the short run, use contractual appointments, which is already being done.

Rao was sceptical about the government gaining anything. “Someone from the private sector will get a complete inside view of policymaking and make good contacts; their market value will be high when they leave. I doubt whether the government can gain much. It’s a different matter if it’s a permanent recruitment. No harm in providing for reservation, but why such recruitments are being made in the first place needs to be clarified,” she said.

Whether the U-turn on lateral appointments is really a climbdown for the government is doubtful.

The government has made it clear that it will institutionalise lateral entry through the UPSC and provide for reservation against lateral entry posts in Group A posts.

The opposition parties may actually have made it easier for the government to do exactly what it wants. Not only has the number of jobs in the Central government shrunk (see tables), there are fewer people from reserved categories in Group A and B jobs, and there is a disproportionate representation of them in Groups C and D. In all likelihood, the posts will be left vacant citing the “non-availability” of reserved category candidates.