OROP to squeeze government finances by Rs 16,000 cr in FY16; to impact fiscal math: HSBC

NEW DELHI: One Rank One Pension ( OROP) will have a significant impact on the country's fiscal bill and the overall cost will be around Rs 16,000 crore in the current financial year, says an HSBC report.

The government has "in principle" accepted OROP - a demand by India's defence personnel that uniform pension should be paid to armed force retirees with the same rank and same length of service.

"This would mean higher current pension payments as well as paying off arrears (retrospectively from July 2014), it will have a significant impact on the fiscal bill. We estimate the overall cost to be Rs 16,000 crore (USD 2.5 billion or 0.1 per cent of GDP) in FY16," HSBC said in a research note.

As per the global brokerage firm, the existing defence pension bill is likely to go up by Rs 10,000 crore, while arrears totalling Rs 12,000 crore will be paid over two years.

"In sum, we estimate the fiscal implication to be Rs 16,000 crore in Fiscal year 2015-16," HSBC Chief India Economist Pranjul Bhandari said.

Meanwhile, other pressures on the fiscal front are also mounting. The government recently announced capital infusion of Rs 70,000 crore over the next four years including Rs 25,000 crore in the current fiscal. The disinvestment department's mammoth target of Rs 69,500 crore, on the other hand, is unlikely to be met.

"The disinvestment receipts target of Rs 69,500 crore looked rather rich. Even in the previous year, FY15, the government budgeted for Rs 63,400 crore but ended the year with about half of that," Bhandari added.

However, factors like lower than expected subsidy bill, additional non-tax revenues like RBI and PSU dividends are likely to offset some pressures on the fiscal front.

The deciding factor on whether the fiscal deficit target of 3.9 per cent of GDP is easily met is likely to rest on tax revenue growth.

"All said, while it's too soon to declare that the fiscal target will be missed, pressures are mounting and it is time to monitor closely," HSBC said.