Reforms in Armed Forces: Pay, Pensions and Beyond

The share of defence pensions pay and allowances have gone up from 49 percent in 2011-12 to 61 percent in 2020-21.

By TJ Reddy  Published on  12 Dec 2020 3:03 AM GMT
Reforms in Armed Forces:  Pay, Pensions and Beyond


The increase in pension costs in the defence budget in recent years has been at the cost of capital procurement. The share of defence pensions pay and allowances have gone up from 49 percent in 2011-12 to 61 percent in 2020-21. The share of capital expenditure has declined from 36 percent in 2012 to 25 percent in 2020-21. 'The fast rise in pension expenditure has a significant crowding-out effect on stores and modernization, two major components that determine a nation's war-fighting ability (Laxman Kumar Behera, a research scholar at the Manohar Parrikar Institute of Defence Studies and Analyses in his paper published in March 2020).

Proposals under consideration:

The present endeavor, therefore, is to optimize the utilization of the defence budget by reducing the revenue expenditure to correspondingly increase capital expenditure. The Army has come up with a number of proposals in this regard in its report — "Optimisation of Manpower and Resources: Review of Practices and Facilities in Indian Army". The focus has been to reduce manpower, bring in austerity measures, curtail diversion of personnel for all non-military duties internally and of course, bring down the budget for pensions. The CDS (Chief of Defence Staff) talked about two issues. One is enhancement of retirement age of all ranks in the Armed Forces to save on pensions and reduction of pension of that serving personnel who seek PMR(premature retirement) in the future, mainly as a disincentive for officers seeking PMR. The reason advanced in proposing to increase the retirement age is to retain the highly-skilled manpower in the defence forces. The retirement age for Junior Commissioned Officers and Jawans is proposed to be increased to 57 years in Logistics, technical and medical branch and these would include the - Electronics and Mechanical Engineers, the Army Service Corps, Army Ordnance Corps and Army Medical Corps. It has further been proposed that the pension be reduced, which is presently 50 percent of the last pay drawn for those seeking premature retirement on completion of pensionable service of 20 or more years. In such cases, the pension would be reduced by 50 percent for 20-25 years of service, 40 percent for 26-30 years of service, and 25 percent for 31-35 years of service. Personnel taking premature retirement on completion of 35 years and above service will not face any reduction. (See the graphics: Courtesy Tanmoy Chakraborty)

Let me first clarify that the Government of India has powers to change terms and conditions only to those who will join government service from the date of issue of the letter (changing such terms and conditions). The Central Government abolished the existing pension schemes for new entrants to government service w.e.f. 01 Apr 2004 and introduced the contribution-based pension scheme. All those who retired till 31 Mar 2014 are drawing pensions without making any contribution. Similarly, the Government of India denied the benefit of OROP (one rank one pension) who seek PMR after the issue of a Government letter on this subject in Nov 2015. All previous PMR retirees are getting OROP. Therefore, my understanding is that any changes in terms and conditions will be applicable only to new entrants from a future date and past retirees will not be affected.

The possible impact of proposed changes:

The need for an increase in budgetary allotment for the modernization of defence forces is well recognized. The recent Ladakhstand off has only hastened the urgency of it. The obvious solution, to hike the defence budget, seems unlikely in the present pandemic- and lockdown-induced downturn where the economy is projected to contract by 10.3 percent this year. (Defence makes up 15 percent of the central government's expenditure and is the second-largest head after interest payment liabilities.). Shortage of funds is not only for essential arms and equipment but also for soldiers' perks such as pensions, pay & allowances. The proposals have been advanced in this given scenario. The timing of such proposals for reforms; while troops are combating major challenges on the Northern borders could have been avoided.

Addressing the first proposal, increasing the retirement age by 1-3 years makes little difference as more than physical fitness at this age bracket it is the mental mobility, decision making capability, indomitable spirit, intellectual honesty, and the tolerance for ambiguity that become desirable ingredients. Age, therefore, is not the ruling factor for retirement. The overall lifespan too has been steadily increasing over the years. There will be views and counter views. The disadvantage of age enhancement, besides leading to aging Colonels and 'greying' of the armed forces, creates a huge flock of disgruntled officers due to stagnation in promotions because the number of vacancies for each rank are fixed. The idea of age enhancement might not be appreciated because of rising "deadwood liabilities" after the supersession of officers and can be made viable only through PMR.

Addressing the second proposal to reduce pensions, if the proposal is implemented, officers will likely choose to stay longer despite the lack of promotions, to claim pension benefits, rather than choosing to retire early and making way for a younger lot. A steep and narrow promotion pyramid in which only 30 percent of officers get to the rank of colonel has led hitherto to a policy of allowing officers who don't make the cut to leave the service. The present proposal though will be a retrograde step, nevertheless need to be addressed by pursuing other measures to reduce the Armed Forces pension bill.

Measures to reduce Armed Forces pension bill:

The 5 CPC (Central Pay Commission), in its report, submitted in January 1997, recommended an increase in posts for Armed Forces personnel in Group C and D in Central Armed Police Forces (CAPFs) from 10 percent to 25 percent. For Short Service Commissioned Officers, on completion of their military service, 5 CPC recommended earmarking 25 percent officer's post in the CAPFs. The intent of these recommendations was to reduce the defence pension bill, save on training and recruitment costs, provide trained manpower to government departments, and provide soldiers a second career after their term of military engagement.

The 6 CPC, in order to reduce the defence pension bill, concluded that "potential to allow a lateral shift of nearly all Defence Forces personnel to CPOs and various cadres of defence civilians exists"; improving the post-military service prospects of Short Service Commissioned Officers finds a prominent place in the BJP manifesto 2014. The 6 CPC and Koshyari Committee had urged the Government to absorb Armed Forces personnel after their military engagement in Civil Government organization including Police Organization as is the custom in many countries, including in China, and in advanced economies like S Korea, Singapore, Israel, Switzerland, and the United States. The transfer and absorption of Armed Forces personnel after the end of their military service into government organizations and departments where their unique skills, training, discipline, and strengths can be optimally used, The Pay Commission recommendations were, however, mostly ignored and Governments did little to implement these recommendations. The problem festered, and the pension bill ballooned.

A committee with Lt Gen Shekatkar (Retd) was formed by MoD in May 2016 with an aim to enhance Combat capability and rebalance defence expenditure. The committee was to suggest organizational changes including the integration of civilian infrastructure (accounting and Logistics) apart from other things. The Shekatkar Committee Report had given out 99 recommendations to optimize the defence organization. The MoD has promptly accepted 65 of them and took actions to reduce the number of Armed Forces personnel to effect saving. However, the remaining 34 of them that involve performance audit of civilian set up under the MoD have not been touched as yet. The Selective implementation of recommendations by various high-level committees and Central Pay commissions has resulted in a sharp increase of defence pensions post OROP, a situation that is now proposed to be addressed through a reduction in pensions. What a tragedy. Strange propositions were now being suggested to overcome the paucity of funds for the modernization of defence forces.

Facts about defence pension bill:

The total strength of the Armed Forces of India is 14.39 lakhs. The total number of Civilian posts in the MOD is 5.85 lakhs that is 40 percent of the fighting force. The total number of armed forces pensioners are 25.87 lakhs and the number of Civilian pensioners in MOD is 6.01 lakhs. The pension bill of the civil pensioners in the MoD is a third of Defence Pensions though they are only 23 percent of the Armed Forces pensioners in numbers. Obviously, they not only serve for a longer period but also take a higher per capita pension than the personnel of the Armed Forces. The current proposal is all about the reduction of pensions of uniformed personnel proceeding on PMR. There are no proposals regarding 32.86 lakhs of other equal numbers of central government employees. However, figures available in the public domain, if correct, suggest that the growth in pension budgets of Central Government employees, including those in the Defence Ministry, over the past decade, have shown a similar growth pattern, between 384% for Central Government (Less Railways, Telecom, Posts, and Defence) and 393% for Defence. Therefore, if there is cause for concern, it should not just be restricted to defence pensions but to the pension outlay of all employees of the Central Government as well. The rising cost of pensions for the bureaucrats who have sanctioned 'One Rank One Pension' (OROP) and 'Non-Functional Upgradation' (NFU) for themselves, where their pensions increase exponentially every year including the usual increase in DA with the rise in the price index are unlikely to be ever touched. The NFU enables every laggard bureaucrat would get the same pay and pension as those who have been promoted to higher grades of pay and PMR has no effect.

Need for radical reforms:

The measures proposed to reduce manpower and the pension bill have some merits, these reforms, however, seem incremental and the armed forces are shying away from radical reforms. Many armed forces have been through similar problems and were addressed only through ruthless review of their structures and organizations. The current proposals are, at best, short-term incremental measures that, in some cases, also tend to impinge on the ethos and functional efficiency of the armed forces. Some of these proposals will also have an adverse effect on the attraction of the armed forces, by all estimations, the one institution that delivers on every task it is called upon. It is indeed the best value for money spent by the government. And yet it is the singular establishment that is expected to clip its pensions and perquisites so that an out-of-control fiscal deficit can be better managed. It is ironic that while thousands of crores of farmer's loans were being written off, there was a huge financial crunch for defence and security. While there were banking scams, involving lakhs of crores of rupees, armed forces are asked to tighten their belts. Crores of subsidies are being given for religious pilgrimages or religious functions, but funds are short for the security of the country. No shortage of funds for competing freebies in election manifestos, but the military has never figured for up-gradation of military ware, the OROP was an exception, a truncated one at that in implementation.

Arbitrary tinkering of the terms of employment evokes apprehensions and discontent. Instead, attempts must be made to adopt measures most modern armies have implemented, tailoring these to suit local conditions and sustainable for a longer time. A short service scheme for both soldiers and officers without a pension, but with incentives like one-time gratuity and preference for civilian jobs, is a tried and tested solution to reduce the pension bill and stagnation in promotions. Such schemes were in vogue in our armed forces for a long time. However, our focus on welfare and obsession with retention of trained manpower led to their termination/dilution. This has been the main cause of the spiraling of the pension bill. There is huge scope for "Rightsizing the Military". A thorough audit of the existing manpower authorization is required to verify if it is more than similar units in other modern armies. There are views that the excess manpower could be to the tune of 25 to 30 percent. The logic of our "unique terrain", "unsettled borders" and commitment to counter-insurgency operations must withstand scrutiny when 50 percent of our Army is committed in the plains. True, the training, up-gradation of skills, professional courses all take place in peace locations in the plains. Also, it is necessary to maintain these peacetime establishments during unspecified mobilization periods either for planned exercises or for the war effort.

The temptation of tinkering with military life:

Military institutions in India have taken generations to mould and develop. Beginning from humble origins, the military has successfully created its ethos and culture that is uniquely Indian. It is in fact a society that reflects the best of India, from inculcating a sense of belonging to this vast land to echoing its civilization vision in a masterly way. Military life in India is deeply spiritual, completely professional, and uncompromisingly inclusive. Soldiers are drawn from Kashmir to Kanyakumari, Kutch to Kohima, and everywhere in between.

A soldier is driven by pride in the uniform, embodying a work culture that doesn't accept laxity and lethargy. The military doesn't make concessions with prejudice or non-performance. The soldiers live, train, fight and even die, for their pride, unit, and mother India, they have developed values, systems, ethics, and practices that sustain their unique way of life, living largely isolated from the vagaries of civil society. This is being increasingly seen as peculiar and in need of reform. Besides, there is the tendency of late among Indian politicians to denigrate military morale, not being aware of what constitutes morale. The public is also accustomed to smartly dressed parades on Rajpathor in Cantonments. They think of the military as a vast mechanized mindset that can be 'managed' simply with the blessings and vociferations of 'Mother India'. Absence of a military background, ignorance of sociology and psychology of the service, and an inexplicable desire to prune perquisites make for a volatile combination.


Military reforms are always welcome if war-fighting capabilities improve. But such improvements can never succeed when they are associated with financial setbacks to soldiers. They can only succeed when structures have created that extract the best from an effective institution and existing ethos.

National security cannot come cheap especially for a country like India. Any expenditure on defence and security is a national premium for 'National Security'. It is indispensable and the onus to find resources cannot be on armed forces by pension cuts. This premium has to be found by the national government of the day to ensure the survival of national integrity. The arrangements of requisite funds for defence and security of the nation is the duty of the nation, the onus cannot be shifted to armed forces.

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