My Response to OROP "Mess Gets Bigger" written by ex Senior Bureaucrat

Refer to the post of Mr Avay Shukla; an ex senior bureaucrat on OROP at following link

http://hillpost.in/2015/09/orop-the-mess-gets-bigger/104257/

and my response

The issue is more related to structuring a right compensation package for soldiers as per established HR norms and standards. It is surely not a nightmare as worldwide, enough research has been done to set certain benchmarks and standards to structure pay and pensions of soldiers. Unfortunately due to vested interests in India, a piece meal approach has been adopted which is also driven only when soldiers cry. Govt and bureaucracy unfortunately has shown no inclination to take ownership of problem fully knowing that soldiers do not have unions like civil employees and no one cares for advice of services chiefs. 

Mr Mukul; a known expert worldwide on pay and pension has written an article on OROP on my request wherein he has justified the demand suggesting certain model. His article could be seen at link http://pragati.nationalinterest.in/.../the-effective.../ 

Mr Mukul has advised many govts including that of Japan, Australia, USA, Singapore etc on structuring pay and pensions of govt employees including that of soldiers.

Unfortunately total lack of professionalism, absence of expertise to understand complexities, unwillingness to show ownership of the problem and lack of a comprehensive approach on part of govt has resulted in the present mess.

Calling soldiers having tasted blood is surely in bad taste. No army marches feeling humiliated and hungry. We must appreciate soldier for having shown tremendous patience and adopted a most democratic path which no army in the world has ever taken. 

The present situation not only demands total restructuring of pay pensions of soldiers but also civil govt employees based on established HR practices and standards. We need to go for restructuring of organization and compensation packages in manner that it draws talents, retains it and delivers services as expected out of it. In relation to soldiers worldwide three basic principles are followed 

1. Average career earnings over his life span including pay and pension of soldiers shall be 15-20% more than civil employees. 

2. Average salary index of soldier shall not be less than a civilian if seen in backdrop of length of service. 

3. Govt retain the discretion to cut cost by allowing lateral absorption of soldiers in civil govt jobs including IAS. 

To deliver above adopt any model. OROP in fact in my view doesn’t resolve the issues in its totality. Use any name call it any model but ensure above three principles which are followed worldwide as set standards to deliver best possible pay and pension package to soldiers to restore their faith in govt. In absence of same no army can ever deliver more than 100% which is required to deter wars in peace and win it during wars. Nation has to make a choice

Response of World's Renowned Expert on One Rank One Pay in Response to My Mail ( included in this blog)

Perspective

The effective implementation of OROP

by Mukul Asher and Azad Singh Bali — September 19, 2015 12:21 am

 

To effectively implement OROP, the MoD needs to depart from its current practices.

The decision by the current government to implement One-Rank-One-Pension (OROP) for military personnel is a welcome move as it reduces the long-standing unfairness in pension arrangements between uniformed military personnel and employees of the Union Government. India is one of the few countries where military personnel have lower pension benefits relative to the civil service. While many design details of OROP are not yet fully clear, the OROP decision can only be effectively implemented and its fiscal implications managed if complementary reforms in three broad areas are sustained: Improving Professionalism In Administering OROP, Sustaining Economic Growth, and Creating Fiscal Space.

The first, Improving professionalism (i.e. the competence and quality of services provided) with which current military pensions programs are administered is an urgent necessity. Four specific initiatives in this regard are outlined.

One, the Ministry of Defence (MoD) must construct a demographic profile of all personnel including their dependents. This is to estimate current and future costs of the pension scheme, and make make arrangements to meet this expenditure. The quality of the debate on OROP has been severely constrained by the lack of available data on basic pension design-related features: e.g. the age-specific composition of beneficiaries and eligible dependents over the next several decades; estimates on mortality and morbidity rates in retirees, and how they vary across cohorts, geographical regions, or occupational groups.

Estimates available in the public domain suggest that most military personnel (about 80 per cent) retire between the ages of 35-40, 19 percent retire between the ages of 54-60, and less than one percent retire above the age of 60. Increasing longevity trends (the average life expectancy at age 60 in India is 17 years in 2014) underscore the importance of such data in shaping the design of pension schemes, and subsequent reforms to ensure that pension promises remain credible and sustainable.

Two, the Government must periodically conduct an actuarial evaluation of the current value of the liabilities and the arrangements made to meet them. Such actuarial evaluations of statutory expenditure are essential for sound management decisions on how such spending is to be sustained and to project cash flow needs. Reforms in managing public accounts, i.e. a shift from cash-accounting to accrual-accounting, where feasible for e.g. in public enterprises, are useful as they underscore the continual need to match long-term liabilities and assets. To facilitate this, there is significant merit in all government agencies maintaining a registry of their assets. The Government does not need to make this registry publicly available if national interest concerns are compromised. However, constructing such a registry is imperative for the government to assess various options to meet contingent liabilities.

Three, Governance Boards that oversee military pension arrangements must include independent professionals that are well versed in actuarial sciences, economics, finance and information management systems. The mandate of the Board would be to ensure that the Ministry of Defence has access to core areas of expertise that are vital for a modern pension program. As civil service personnel are routinely rotated between government agencies, access to such expertise is imperative.

Four, given the complexity in the design of OROP and the periodic revisions that retirees will face, the MoD must strengthen its communication strategies. Annual Reports, Web Portals, Wikis that contain necessary information will be needed. Such tools place competitive pressures to provide quality services across all government agencies.

The Second, credibility of any Defined-Benefit pension scheme, including the OROP, is based on sustaining high rates of economic growth. Specific reforms that contribute to improved economic growth in India are therefore essential. This will require complementary and structural reforms to increase the flexibility in labour markets, lower the cost of doing business, attract investments and create jobs. This however requires a systemic approach and coordination across government agencies. There are two initiatives that MoD can consider to sustain economic growth.

One, investments in human capital and equipping military personnel with skill-sets that can be used in employment post retirement merit consideration. As most personnel retire before the age of 40, and can continue to contribute to the economy for many years, labour market reforms that encourage retired personnel to be absorbed across the economy must be prioritised. It is often the case that many military personnel contribute to security, administrative and organisational management post retirement. Creating avenues to utilise the vast skill-set and experience of personnel in other areas in the economy are also important.

Two, many Ministries including the MoD manage large public enterprises. More productive use of resources under these enterprises is another avenue to contribute to economic growth. For instance, many government agencies manage large parcels of land that are not being used efficiently. Once a national registry of assets becomes available, concrete efforts to monetise unproductive assets or generate revenue from these assets (i.e. land-use rights or leases) must be prioritised.

The third, creating fiscal space. Simply put, fiscal space refers to the ability of an economy to finance expenditure without impinging its other priorities. Creating fiscal space to finance OROP is fundamental to ensuring the sustainability and credibility of military pension arrangements. In this context, fiscal space can be created by either or a combination of a) reducing expenditure needs of the MoD; b) increasing revenue or share of national income devoted to the MoD; c) sustained increases in national income.

Lowering administrative costs of pension programs by relying on information technology or saving costs through efficient procurement practices are examples of lowering expenditure requirements. Similarly, monetising unproductive assets or using land-use rights to generate income is an example of creating fiscal space. For example, the recently completed coal and spectrum auctions will, over time, generate revenue equivalent to 2.5 percent of 2013 GDP. Sustained efforts by all government agencies, including the MoD, to implement reforms that create fiscal space must therefore be emphasised.

The cost of the pension program for civil servants (employed in central and state governments) prior to the National Pension System (NPS) was about 1.9 percent of GDP. Such disproportionately high spending on less than 4 percent of the labour force precipitated reforms to pension arrangements for newly recruited civil servants.

The co-contributory design of the NPS may not be effective for military personnel as most retire before the age of 40. The NPS however provides a framework for managing pension arrangements that MoD could customise. For example, over time, the MoD could make annual transfers to sinking funds to meet pension expenditure for future retirees. The proceeds of these funds could be managed by NPS or under the NPS architecture. Such arrangements would strengthen the fiscal sustainability, and improve the professionalism of military pension arrangements in India.

The Ministry must undertake complementary and concomitant reform in the three broad areas discussed here if public support for OROP and the credibility of military pension arrangements is to be sustained. This would require MoD to depart from current practices and its business-as-usual mind-set.

Photo: .Uvitra

Mukul Asher is Councillor and advisor to the Faculty at the Takshashila Institution. He is a Professorial Fellow at the Lee Kuan Yew School of Public Policy at the National University of Singapore. Azad Singh Bali is a Research Fellow at the School of Management and Governance, Murdoch University.

Published at link http://pragati.nationalinterest.in/2015/09/the-effective-implementation-of-orop/

OROP- Are Defense Forces Same Class of Public Servants as Civil Govt or PMF or Police Employees? Are Their Enough Funds?

Following two reasons are being given in media debate for Govt being hesitant on giving OROP to defense forces

1.       If OROP given to armed forces the other civil, paramilitary and police employees will also ask for it. The demand is based on assumption that defense forces are of same class of public servants as civil govt, para military and police employees.

2.       Govt doest have funds to give OROP

Both the above questions are not only being popped up due to vested interests but are also to create deception based on lies. Let me explain the above two issues?

Are defense forces of same class of public servants as civil, para military and police?

Before we come to above question let us ask one question? Are, President, PM, MPs, Judges paid like civil govt servants? No. But why as they are also public servants? Because they have a distinct constitutional identity and are separate class of public servants?

Same is the case with armed forces. Constitutionally they are distinct class of public servants because of following reasons

a.       President wears yet another distinctly separate hat of supreme commander of defense forces.

b.      That is why Armed forces are not part of govt but attached to Govt for administrative reasons only.

c.       Officers of defense forces therefore are commissioned officers and exercise unique absolute powers of command. The concept of command entails exercising sovereign functions of state, judicial powers, powers of magistrate, operational executive powers and administrative powers vested in single person who is in command. Such concept is unique to only military. Civil Govt on other side has different institutions for each of these functions. 

d.      Clause of pleasure of President as mentioned in article 309 to 313 applies in a different manner on soldiers of defense forces than civil govt servants.

e.      Job profile of defense forces is totally different wherein he commits his life to the nation against certain sovereign guarantees and these liabilities even continue after retirement from service. No other civil govt service including PMF and police carry after retirement liabilities. A retired soldier technically can always be recalled for duty any time after his retirement subject to his fitness. That is reason member of defense forces are given title of ranks like Colonel, which they use as prefix to their names till death. A soldier is always a soldier of state till his death. It is his service to the sovereignty of the state.

Profession of soldiering therefore is a commitment for life. Constitution accordingly makes a distinct identity for them.  So if they have a distinct identity and service conditions then they need to be paid accordingly like you pay President, PMs, MPs, Judges etc and surely not like civil govt employee or PMF or police for the reasons as explained above.

That is the reason worldwide military pay and pension fixation is done by separate pay commissions or appropriate bodies. In India the same pay commission does it but it is given a separate terms of reference to maintain distinct identity of military. That is the reason Pay Commission Report contains separate chapter for defense forces.

Defense Forces have been demanding a separate pay commission for themselves to recognize their distinct constitutional identity.

As soldiers serve for life and commit it to the nation, they have been given certain sovereign commitments and one of it is lifelong assured pension as per length of his service and title of rank on the concept of OROP and model of Pay As You Go.

OROP was being given to soldiers and we all under what circumstances it was mischievously dropped. When the mistake was pointed out to Govt assurance was made that it will be restored. Since than soldiers are struggling for OROP.

Govt doesn’t have enough fund.

Is that true when you see the way for votes the public funds are been distributed or the way civil govt employees are being paid. The financial burden of civil pay and pension has risen from 1% of GDP to 2.5% of GDP where in terms of % of GDP soldiers pay and pension has gone down . No authentic figures are available but it is reported to have gown down from .75% of GDP to .35% of GDP. How is that happening if there are no funds?

Can it be said that we will pay all other public servants at will but make soldiers to beg?

Another way of saving funds is cutting corruption in defense procurements and modernizing structure of defense forces ( It is still based on WW II model). Easily 30% of the defense budgets could be saved.  You can pay OROP and also spare funds for national development schemes.

In Nutshell

In nutshell both the arguments as being given to stall restoration of OROP to soldiers doesn’t stand to scrutiny. These questions do not stand to reason. It is pure lack of will on part of poltical leadership or may be a design to keep soldiers helpless and begging which looks to be a strategy to deny OROP to soldiers.

Please also check out blog http://onerankonepay.blogspot.in/2015/08/point-blank-talk-one-rank-one-pnesion.html for more clarity.

There is need to give justice to soldiers by adopting best practices as followed in world by most democratic nations while paying their professional armies and first step is to give OROP. It shall be followed by constituting a military commission as promised by BJP Govt in their election manifesto. The same commission can then undertake all pay and pension issues separately in addition to issues of resettlement and rehabilitation.

Point Blank Talk - One Rank One Pension

This blog is in reply to blog http://ajayshahblog.blogspot.in/2015/07/what-is-cost-of-one-rank-one-pension.html 

Thanks for writing this blog which many IAS officers are quoting. I am indeed grateful. I wish it was such a simple arithmetic.  I am sure we all agree that best practices shall be followed while deciding such issues. Lots of researches have been done on structuring military and civil pensions. Best coming from Japan and Singapore which is even followed by west. Mr Dave is one who has done some work but his findings are not authentic and needs validation. Nevertheless let me highlight few points for assisting writer of this blog and raising certain questions to him. I am sure it will help him and others understand this complex issue in its right perceptive.

My comments on blogs are

1.       As far this blog is concerned it has been written purely from a perceptive of an insurance company and no insurance company insures war casualties or gives a total package to a soldier.

2.       Professional soldiers (mind you it is profession of arms and not job) are given certain sovereign commitments to prevent becoming mercenaries.  Choice is of state you want a professional army or an army of mercenaries.   India made a choice to go for a professional army and gave certain sovereign commitments and same needs to be respected and it has a cost.

3.       There are certain wrong assumptions made like life expectancy which in fact in case of soldiers is lesser than civilian by 8 years. It may come as surprise to writer but that is true soldiers though healthy die early due to certain psychological and physical disorders which they develop due to stress of service

4.        Issue of OROP cannot be seen in isolation. It is part of whole compensation package and structure as adopted in India and in particular reference to military where sovereign commitments have been made. The issue has risen as soldiers pension was reduced from 75% to 50% violating orders of Nehru Govt.  Writer may like to search and read orders of Nehru Govt on how to fix compensation package for soldiers and mind you it is still valid.

5.        Worldwide as a standard practice military pay and pensions are structured in different manner than civil and it has reasons of adhering to best HR practices and also certain sovereign commitments which state gives to soldiers for having committed their life to nation and mind you this commitment is for life. That means even after retirement soldiers of the state carry that commitment till his death and that is the reason military personals are given title of rank by law which they use as prefix to their names forever. It becomes part of identity. No civil or police service carry such liability and that is the reason pension model of PAY AS YOU GO is adopted for soldiers worldwide and NPS and other models s applicable to civilians.

6.       Military constitutionally has a distinct identity like judges. Military officers are commissioned officers and it is a separate class. I am sure writer understands certain functional implications and responsibilities of being a commissioned officer.  A civilian president is a supreme commander of defense forces. There are two separate hats which he wears and that is the reason military forces are attached with govt only for administrative reason. No civilian except president therefore has command authority over the forces. This is also the reason worldwide separate pay decisions are made for soldiers and it is not clubbed with civilians. Unfortunately in India same pay commission deals with both subjects which violate constitutional identity of soldiers.

7.       Issue being complex as mentioned above after due research for most of the modern armies following principles have been accepted while deciding their compensation package and India shall be no exception ( Order of Nehru Govt on administration of pay and pension of soldiers)

a.       Considering job profile of soldiers, Average Career Earnings of soldiers shall be 10-30% more than civilian staff and this in addition to cost attached to provide certain functional facilities to make them perform their jobs. Average career earning is worked out as pay and pension cost during entire life.

b.      Considering sovereign commitments which govt makes to soldiers (for not becoming mercenaries and certain security compulsions) and soldiers make to state for life, assured pension is a sovereign commitment and not favor.

c.       While deciding above title of ranks shall not be considered as a benchmark for parity as these are unique to military but their length of service. Therefore Average Salary Index is worked out to bring parity in relation to length of service( Nehru Govt order makes it clear)

d.      Govt retains the discretion to reduce cost by assuring jobs or compensations in other forms in returns. In any case minimum returns for having been a soldier cannot be reduced. In USA while soldiers are in civil govt or corporate jobs, makes suitable adjustments in pensions but it is restored if the jobs are lost. ( in USA a soldier can even earn 100% pension :) )

8.       Issue of soldiers pay and pensions have been lingering on for decades now. Whole complexities were created by Mrs  Indra’s Govt due to certain political game of revenge and her aspirations to have total control over military ( may be before emergency). Avoiding that, I can only say the issue is taking heavy toll on moral of soldiers risking sure defeat in next war. Nation has to make a choice what does it want? A professional Army or an army of mercenaries or slightly more armed para military force, or wish to outsource defense of country to other nation like Japan or have no military but a police force in hope that nukes will give you security or multiple forces created to take care of self perceived coup phobia? Everything has a cost. Choice has to be made. If you can’t pay a professional army than give liberty to soldiers to look for employment anywhere in world like any civilian. There are enough countries which have shortage of men ready to pay Indian soldiers more especially when security environment is deteriorating and cold war II has already started. Russian and French offers are already there. Britain, Canada and Australia are already thinking giving soldiers of India under commonwealth a status of their own veteran. In fact Canada has already given. USA is ready to open her army for Indian soldiers. In any case Pakistan won’t mind and do it happily. It is question of oath and commitments which all public services take. Soldier’s commitment to state is in terms of their oath which they take in return to certain sovereign commitments. If you can assure sovereign commitment its fine and if state can’t then also it is fine soldiers are free thereafter to take decision like any other citizen of this country. (in any case who is abiding by oath in this country).

  

9.       As far as cost is concerned 30% cost of defense can be reduced in India if corruption is eliminated and military is structured as per modern armies. We are still structured as per WW II model and our procurement systems are highly corrupt. State can easily pay to soldiers then. In fact soldiers are asking lesser. OROP doesn’t compensate fully as per standard practice. In any case as per writers estimates the increase in cost is only 231% which if corrected with right figures of soldiers life expectancy and inflation will be not more than 150%. Which is peanuts for the quality of defense nation is getting. 

10.   It is not question of simple’ arithmetic but is related to survival of India in most hostile region of world. Considering long history of slavery, I only hope nation learns. After all it is men behind weapons who win wars where there are no space for runners up. Nation may like to know about cost benefit analysis of .75% of GDP spend on soldiers cost versus 2.5% of GDP spent on civil govt staff (increased in name  of economy from 1 to 2.5%).  Per penny returns received. After all India is a poor country and it is tax payers money.

OROP; Request to Professor Mukul; Renowned Expert, For Advice

Dear veterans

A mail written by me to Professor Mukul of University of Singapore is given below. Prof Mukul is known expert of pensions including military and has advised many govts. he has written some good articles about Indian pension system.  He has kindly agreed to give his advice on the subject to help us understand its complexities. Please read the mail below which has been sent to him...

_________________________________________________________

Dear Professor

Thanks for your mail. As you are well versed with subject especially so about pension structure in India and worldwide in many countries, I shall straight come to issue.

In India, military pensions have been always a sore point. Veterans have been demanding One Rank One Pay (OROP). I am sure you are aware of the issue. Just to give you a gist of the problem, I am posting the following link:

http://www.niticentral.com/2015/06/14/one-rank-one-pay-orop-perspective-from-our-veterans-317866.html

To summarize it:

1. At time of independence military salary and pensions were curtailed drastically whereas civilian salary and pension were untouched.

2. Though first pay commission clearly gave out length of service and not rank as base to compare parity with civil but over a period of time it was always ignored. Govt order on it still holds ground but is not being followed and ignored by all subsequent pay commissions.

3. Third pay commission reduced military pension from 70% to 50% and money saved was used to increase pension of of civilian from 30% to 50%. The issue of military personal retiring young was ignored and no compensation was given for same.

4. Though constitution treats military distinctly under article 309 to 313 of Constitution but legally a separate status of military pension has not been defined under it and no laws as required under these articles, have been framed. Absence of such laws opens up grounds of Civilians, Para Military or Police Forces to demand parity with military salary and pensions. Govt is now considering creating a statute to pave it way.

5. In 2004-5 NPS was introduced for civilians and para military soldiers. Military was not given same on a plea taken that for military, Govt doesn't want to dilute an assured pension at rate of 50% whereas real reason was that as soldiers retire young and if same calculation as civilians is considered (based on NPV) then Govt will not able to afford their contribution to pension for soldiers. Under NPS for civilian itself Govt expenditure has risen from 1% of GDP to 2.5% of GDP. For soldiers it remains same as .3% of GDP as no NPS system was implemented for them. Now issue is that under NPS system civilian’s pension actually created more financial burden to govt and for soldiers based on NPV, govt couldn’t simply afford NPS for soldiers. Though under NPS system the equity returns shall be driven by market forces but trade unions forced govt to fix a minimum rate returns ( no limit for higher)  thus creating more financial burdens. It compromises the basic concept of NPS but assured more than 11/5 times benefits over then existing pension to civilians.

7. In 6Th pay commission, military system of time scale promotion was copied, modified and given to civilian in form of NFU at much enhanced scale. It resulted in a situation where in a police Constable draws 2.5-3 times more average career earning including pensions then soldiers. The system gave OROP indirectly to them where as soldier have been denied.

Now situation is critical. Sh Narendra Modi promised OROP to soldiers but when Def Ministry sent the proposal finance ministry is raising certain unexplained objections. Military veterans are agitating and in no mood to back down from their demand for justice. If this situation prevails for longer period and passions remain high it is likely to demoralized serving soldiers.

In view of above I request you to guide us on following issues?

1.    Legally what is system of military salary and pension worldwide specially so in democracies? Has any distinction been created and if so then what are accepted norms?

2.    How are parities between salaries and pension of military person with civilians created? Is the system of average salary and pension index and average career earnings including pension followed as a norm?

3.    Is there any norm to keep average career earnings including pension of military persons 10-20% more than civilians? If so then how is it assured?

4.    In India DB system of pension with Pay As You Go system is followed for military soldiers? How does it compare with NPS system? What are established trends worldwide?

5.    How is OROP assured for military? Is it based on length of service or length of service plus rank?

6.    In Indian context what is your advice on the dispute?

Professor it appears to me that even with OROP given to soldiers, their average career earning will still be lesser than civilians which will be against the established norms worldwide wherein 10-20% more average career earnings are assured to soldiers.

I request you for valuable guidance to help us veterans to understand the issue in depth so as to enable us in helping govt for creating a salary and pension system for military as per established norms worldwide. Frankly speaking, we have no trust on our bureaucracy which has always acted against interest of soldiers taking advantage of ignorance of politicians.

We understand the issue is complex and not so simple as it appears, but with your guidance we feel that we shall be able to tackle the misguiding inputs of  our bureaucracy.

We shall be grateful for your inputs.

Regards

Colonel Ashok Kumar Singh; veteran