Monday, 16 Jun, 2025
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The central and state governments collectively allocated around Rs 9.6 lakh crore for employee pensions in FY24, representing 3.3% of India’s GDP. This expenditure ratio had reached a high of 3.8% in FY21 during the Covid-19 pandemic but has since tapered to a range of 3.3 to 3.4%.
The Centre set a minimum monthly pension of Rs 1,000 for beneficiaries under the Employee’s Pension Scheme (EPS) in September 2014. Although the labour ministry has proposed increasing this amount to Rs 2,000, the finance ministry has not yet approved the change, citing fiscal constraints. According to the FY23 report from the Employees’ Provident Fund Organisation (EPFO), the scheme covers nearly 75.5 lakh pensioners. Of these, 36.4 lakh receive pensions up to Rs 1,000, 11.7 lakh receive between Rs 1,001 and Rs 1,500, and 868,000 receive between Rs 1,501 and Rs 2,000. Notably, only 26,769 pensioners receive more than Rs 5,000 monthly, according to several reports.
In March 2022, the Parliamentary Standing Committee on Labour instructed the labour ministry to work with the finance ministry to secure increased budgetary support, emphasising that the current Rs 1,000 monthly pension was insufficient.
For the third consecutive year, the number of individuals benefiting from government assistance under the EPS is likely to rise in FY24. The latest annual report from the labour ministry projects a nearly 4 per cent increase, bringing the total to about 21.3 lakh pensioners, up from 20.5 lakh in FY23. This upward trend is largely driven by stagnant wages and persistent inflation, which have diminished subscriber contributions and prompted a need for enhanced government support. As a result, the proportion of pensioners receiving government aid has edged up slightly to 27.3 per cent, compared to 27.2 per cent the previous year, the Business Standard reported.
In FY24, the Centre and states together spent approximately Rs 9.6 lakh crore on employee pensions, accounting for 3.3 per cent of India’s gross domestic product (GDP). This ratio had peaked at 3.8 per cent in FY21 during the Covid-19 pandemic but later declined to 3.3-3.4 per cent. Historically, from FY15 onwards, the average expenditure has been 3.3 per cent. For the first time, combined pension expenditure exceeded Rs 5 lakh crore in FY24, with states’ pension spending surpassing that of the Centre by over Rs 82,000 crore.
As of March 31, 2023, the total number of central government pensioners exceeds 679,500. This includes 114,200 civil pensioners, 338,700 from defence, 438,000 from telecom, 301,000 from postal services, and 152,500 railway pensioners.
The financial daily quoted KR Shyam Sundar, adjunct professor at the Management Development Institute, pointing out that low wages for many EPS subscribers limit their pension contributions during their careers. This reliance on social support, rather than pensions, is worsened by the EPS’s structure, where payouts are tied to contributions. Stagnant wages and rising inflation further shrink these contributions, leaving workers with modest pension savings that often require government top-ups.
More significantly, the labour ministry’s annual report indicates that government spending to implement the minimum pension provision is expected to rise by 26 per cent in FY24, reaching Rs 1,223 crore, up from Rs 970 crore in the previous fiscal year.
In FY24, the government formed a committee, headed by the Finance Secretary, to review the pension system for government employees, though its recommendations are still awaited. Meanwhile, states like Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh have either reverted or announced plans to revert to the Old Pension Scheme (OPS).
The Reserve Bank of India, in its December 2023 report State Finances: A Study of Budgets of 2023-24, expressed concerns over the sustainability of this move. The central bank warned that the return to OPS could place a heavy burden on state finances, restricting their ability to invest in growth-oriented capital expenditures.
