India’s Chief of Defence Staff General Bipin Rawat made a startling suggestion on 4 February when he said that the retirement age of defence services personnel, predominantly for those who are below the rank of officers, should be increased to 58 , from the current 37-38, in order to reduce the increasing defence pension bill and optimise services.
Gen Rawat’s recommendation, if implemented, could debilitate the effectiveness of India’s military instrument, for a nation’s military is fundamentally shaped for combat, where age plays a significant role in conditions that are characterised by danger to life and limb, fear, uncertainty and unimaginable physical and mental stress.
Youthful force necessary for operational requirements
The character of combat conditions is, no doubt, constantly changing due to technological advancement. So, one could argue that close combat and bayonet charges are things of the past and one could inflict greater destruction from the safety of a well-protected underground facility by simply watching a computer screen and pressing a button. This is a dangerously misplaced notion that ignores the nature of war, which essentially remains a form of violence for serving political purposes. As long as there is an adversary who can reciprocate in kind, one cannot wish away the natural ambience of the battlefield that imposes itself on combatants.
It is true, however, that not all military persons are on the battlefield, so those who have logistic and administrative functions need not be young and can, therefore, serve till 58 years of age as suggested by the CDS. This possibility must be explored as long as the identified slots leave enough scope for rotation of personnel from the difficult conditions of field to peace. While there is definitely some room for exploration here, by itself, the overall impact on reduction in pension would be marginal.
The fact that 28.4 per cent of the defence budget goes to pensions and there is revenue-capital ratio of 75:25 is alarming because it has deleterious impact on modernisation. In an increasingly challenging geopolitical environment, this is a grave security concern and one that has been known to India’s security establishment for decades. The issue of burgeoning defence pensions has been exacerbated by the ‘One Rank One Pension’ scheme . In 2015-16, before the OROP was introduced, defence pension expenditure was at Rs 54,000 crore . By 2020-21, the pension expenditure has more than doubled and is now pegged at Rs 1.33 lakh crore.
With the issue of 60,000 defence retirees every year, coupled with increasing life expectancy, the problems associated with reconsidering the military retirement age are manifold, and call for political intervention at the highest level. These issues pose serious threats towards maintaining military effectiveness. CDS Rawat’s suggestion may not be feasible, but he has certainly highlighted a critical issue that has grave implications.
The five pathways
Since it is clear that complex problems such as growing defence pensions can’t be solved with a single proposal of extending the retirement age of soldiers, here are five pathways that are examined:
First, bring India’s armed forces personnel under a variant of the National Pension System (NPS). The NPS is a “defined contribution” scheme where the pension is paid out of a corpus the employee creates using their own savings. Such a mechanism will help reduce the government’s own expenditure on employee pensions, but its political feasibility is quite low; the 2019 Lok Sabha election manifestos of both the Bharatiya Janata Party and Congress claimed credit for the implementation of OROP, which is diametrically opposite to the NPS because it is a defined benefit scheme that resets periodically based on current employee compensation leading to a perpetually growing liability for the government.
Second, retain retired armed forces personnel in the other segments of the national security system like intelligence, the Defence Research and Development Organisation (DRDO), Ordnance Factory et al to reduce expenditure on pensions for the additional number of years served. However, this solution is not viewed in favourable terms by the retiring armed forces personnel currently due to concerns of loss of rank, seniority and pay protection.
A third solution is the reduction in the intake of defence personnel in the armed forces over time. However, any such reduction is heavily dependent on operational requirements and threat perceptions. Given India’s national security challenges and the continuing continental strategic challenges posed by China and Pakistan, a major reduction in intake is unlikely.
Fourth, reduce the number of defence civilians in India’s armed forces. The Indian military’s ‘tooth-to-tail’ ratio of about one soldier to 1.15 civilians is considered quite high. However, unlike the OROP for defence personnel, incoming defence civilians have been made a part of the NPS, which means that the pension expenditures incurred per civilian by the central government will decline over time. Moreover, our calculations show that the total defence pension outgo planned for all defence civilians is 25 per cent of the total defence pension expenditure in FY 2019-20.
A long-term solution
A long-term solution was suggested in August 2017 when the issue came up for consideration of the Standing Committee on Defence as part of its 33rd report to the Lok Sabha titled “Resettlement of Ex-Servicemen“.
The National Security Council Secretariat originated a proposal that mentioned reducing the quantum of pensioners by creating a system wherein there would be a flow between the armed forces and the police forces. It was unique one in suggesting that initially the parent police organisation could recruit personnel and after which the personnel would serve in the armed forces for seven years and return to the original organisation. This would decrease the pension outflow as the OROP of a soldier will be replaced by a much smaller National Pension System (NPS) bill of a Central Armed Police Forces/State Armed Police Forces recruit. The Ministry of Defence will then not have to bear the pension burden because CAPF/SAPF fall outside their funding mandate.
Moreover, there are likely to be positive spillover effects because the fighting capabilities of these forces will improve as a result of inverse induction. The proposal found acceptance by the defence ministry but not the home ministry. Political intervention is required for the MHA to change its stance, because in the view of the author, it is primarily based on turf protection.
In September 2019, we proposed a Human Capital Investment Model to operationalise this solution, which is illustrated below.
The scope of this model can be scaled up with other government agencies by matching common skill sets. We conservatively estimate that by recruiting only 10 per cent of its soldiers through this track, the government can achieve pension savings worth a net present value of Rs 1.2 lakh crore.
Certainly, there are no short-term solutions other than an increase in the defence budget. In the present economic situation, this is a political challenge that must be examined holistically by the National Security Council to weigh in with the priorities imposed by security imperatives and the demands of development. In any case, escalating defence pensions should not be treated as an issue that can be decided by financial mandarins but be based on a politico-strategic outlook.
Lt Gen (Dr) Prakash Menon is Director, Strategic Studies Programme, Takshashila Institution, Bengaluru. Pranay Kotasthane is Research Fellow at the Takshashila Institution. Views are personal.