With assembly polls due in Tamil Nadu, Kerala in two years, South goes into ‘study’ mode on UPS

Less than two months ago, Karnataka announced a major increase in salaries of government employees, entailing an additional annual expenditure of Rs 20,206 crore.

The UPS features have put the southern states in a bind as four of them are ruled by opposition parties and have been bogged down by welfare expenditures and additional burden arising out of implementation of pre-poll guarantees.

“We are yet to get full details and the picture. We will examine it with a positive and open mind,” Karnataka’s revenue minister Krishna Byre Gowda, who represents Karnataka on the GST Council, told ET.

Under the National Pension Scheme (NPS), the states contribute 14% of the basic salary plus dearness allowance (DA), while employees contribute 10% of basic salary plus DA every month. Kerala, however, has been making a 10% matching contribution due to its grave fiscal situation.

Kerala and Tamil Nadu are scheduled to go to the polls in 2026. Karnataka and Telangana had assembly elections last year, while Andhra Pradesh has just had its new government. The employee unions want revival of the Old Pension Scheme (OPS), a prospect experts say will exact a huge cost on welfare programmes. Tamil Nadu and Karnataka are studying the implications of a switch to the UPS, but much depends on the Congress party’s stand, said people familiar with the matter.The UPS provides an assured pension amount to government employees on their retirement. While employers will contribute 18.5% of the basic salary plus DA, employees will give 10% of basic pay plus DA every month. A switch to the UPS would mean states increasing their share to 18.5%.Gowda, while acknowledging the concerns of employee associations about the NPS, said it was also the constitutional obligation of the government to meet its larger social obligations towards people. The government will have to take a call on how much of the budgetary spending should go for employee costs and towards people, he said.

He said the state would be able to manage the demands of employees without stress on the state’s fiscal situation if the 16th Finance Commission delivered justice. “If the 16th FC also takes the same stand, they will be imperilling the interests of Karnataka,” he said.

Karnataka, the revenue minister said, had been facing a severe fiscal stress due to the “injustice” done by the 15th Finance Commission. The state suffered due to the injustice in devolution of funds, loss of goods and services tax compensation and increase in cesses and surcharges by the Centre, he said.

“If you add all the three, we are losing about Rs 50,000 crore a year. We hope some of this will be remedied by the 16th Finance Commission,” Gowda said.

Kerala’s law minister P Rajeeve said his state has already set up a committee of ministers to examine the expert committee report on a revised contributory pension scheme. Hence, it has yet to take a view on the UPS.