Early in its third consecutive term, the Narendra Modi government took two decisions pertaining to civil services, often described as India’s steel frame. One was hurriedly withdrawn in the face of political opposition, while the other seemed to face no such pushback.
We are referring to the decision on lateral entry of 45 mid-level officers from the private sector into joint secretary/director/deputy secretary-level posts in the government, and the Union Cabinet’s approval of a unified pension scheme (UPS), which, as an alternative to the national pension system (NPS), provides, among other things, a guaranteed pension equivalent to 50 per cent of the average monthly salary drawn in the last year of service.
Two reactions
The notice inviting applications for 45 posts under the lateral-entry scheme was posted on August 17, but it was withdrawn two days later after political opposition to the idea gained momentum both within and outside the government. It is likely that the government may frame a revised lateral-entry scheme incorporating provisions for reservations to address those political concerns. But nobody is sure when, if at all, a revised lateral-entry scheme will be launched.
In contrast, the decision on UPS has been welcomed by the Congress president and other senior party functionaries. Soon after the Cabinet’s approval, Modi met a delegation of the Joint Consultative Machinery for Central Government employees, whose leader welcomed the UPS decision for providing an assured pension and family pension for their members. National trade unions are yet to offer their unconditional support to the modified pension scheme, but this is not likely to be a hurdle in its rollout from April 2025.
Why did the political system in the country react to these two decisions of the Modi government in a diametrically opposite manner?
Also read: Govt having a hard time propping up PSUs. It must address politics-economics disconnect
Pushback to UPSC lateral entry
Prima facie, India’s political economy has not really changed in spite of more than three decades of economic reforms. Despite its merit, a decision that hurts the vested interests of an influential segment of society continues to pose many difficulties in its implementation. Inducting 45 professionals into government service was seen by opposition political parties and some coalition partners of the Modi government as a move to undermine the policy on job reservations for socially underprivileged people. It was no surprise that such political parties were also vocal in their opposition to the proposal and the government quickly withdrew the notification on lateral entry. It was a political retreat rather than a reconsideration of a policy on economic grounds.
Contributing to this political retreat was the Modi government’s failure to build a general consensus on lateral entry at least among its coalition partners, let alone the main opposition political parties. The notification issued by the Union Public Service Commission (UPSC) announcing the induction of 45 officers from the private sector came almost like a bolt from the blue, even though many committees had in the past recommended the idea of lateral entry and previous governments had also adopted the policy for the induction of private sector professionals into government jobs.
But there was a big difference between what happened during the reign of previous governments and what happened now. In the past, as in the case of the Industrial Management Pool during the 1950s or later through the induction of public sector managers or senior economists into the government system, the appointments were mostly at the level of secretaries. Only a few of these appointments were at the level of deputy secretaries, directors or joint secretaries. That certainly helped blunt any general opposition to the idea of lateral entry into government service.
More importantly, such recruitments in the past took place in small numbers. But last week, the Modi government made a big-bang announcement to appoint 45 private-sector professionals. This was equivalent to almost a quarter of the annual intake of Indian Administrative Service officers. No surprise that the UPSC notification caused concern among civil servants in general, who feared their promotion avenues would be blocked. Taking them on board before announcing such a decision could have addressed their concerns and ensured that the so-called steel frame made the lateral entrants part of the governance system. In any case, India’s political economy is yet to come to terms with big-bang reforms unless there is an acute economic crisis.
Also read: Budget 2024 shows Nirmala Sitharaman is fiscally prudent, bold, and politically savvy
Smooth passage
In comparison, the proposal on the UPS has moved smoothly even though some concerns have been expressed. But these are concerns that can be handled through further consultation and negotiation. The Prime Minister’s decision to meet with a delegation of the Joint Consultative Machinery for Central Government Employees soon after the Cabinet decision in the UPS should also help prevent any unrest among the government staff.
To be sure, the UPS is not an improvement over the NPS, which had adopted the principle of defined contribution for running a fiscally responsible pension policy. The UPS borrows the principles of both a defined contribution and defined benefit policies. It continues with the NPS rules of contribution, of course, with a difference in the share of contribution — the government will now contribute 18.5 per cent against the earlier share of 14 per cent, while the employee’s share remains at 10 per cent. But it also offers a defined benefit by guaranteeing a pension equivalent to half of an employee’s annual salary in her last year of service.
Fiscally, therefore, the UPS does impose an additional annual financial burden on the exchequer, but it is certainly far less ruinous than what the Old Pension Scheme entailed with its assured pension without any contribution from either side on an annual basis. A bigger gain is a reversal of a distortion that the Sixth Central Pay Commission had introduced by reducing the number of years of service for full pension entitlement from 33 years to 20 years. The UPS raises that requirement to 25 years. And this is a change that has been brought about after consultation with the employees.
In her 2024-25 Budget speech last month, Finance Minister Nirmala Sitharaman had referred to the progress the government had made in reviewing the NPS. She also expressed her happiness that the staff side of the National Council of the Joint Consultative Machinery for Central Government Employees had “taken a constructive approach,” and she was hopeful that all relevant issues would be resolved “while maintaining fiscal prudence to protect the common citizens”. It now appears that the first hurdle of securing the acceptance of government employees of the modified pension scheme has been overcome. The bigger hurdle will be to ensure that UPS also maintains fiscal prudence. That could well prove to be a challenge, given the demands that would be made to increase the government’s contribution or reduce the period for full pension entitlement.
AK Bhattacharya @AshokAkaybee is the Editorial Director, Business Standard. Views are personal.