And one of the primary reasons why the Agnipath scheme was introduced was to keep a check on the rising burden.
Soldiers recruited under the older order have longer service tenures, leading to higher cumulative salary costs compared to the short-term service under the Agnipath scheme.
In FY23, the defence pension outlay was increased by 3.5 percent to Rs 1.19 lakh crore.
In FY21, the defence pension outlay rose by 18.7 percent to Rs 1,33,825 crore.
However, in FY24, even after the implementation of the Agnipath scheme, the defence pension outlay increased to Rs 1.38 lakh crore, a jump of nearly 16 percent.
Soldiers recruited under traditional schemes have longer service tenures.
With Modi 3.0 set to be a coalition regime, unsurprisingly, demands have started emerging from parties giving support to the new National Democratic Alliance (NDA) government that will take over at the Centre.
The Janata Dal (United) or JD(U), a key partner of the Bharatiya Janata Party (BJP), is said to have sought a review of the contentious Agnipath short-service scheme for defence personnel. In the event the incoming regime scraps it altogether, the pension burden on the exchequer is likely to increase.
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The scheme, introduced by the Narendra Modi government in its previous term, involves recruiting youth in the 17.5-21 age bracket as soldiers for four years. Its aim is to modernise the military forces, create a youthful and agile profile, and reduce long-term financial burdens associated with pensions and other benefits.
Currently, at the end of their tenure, Agniveers, as the recruits under the scheme are called, receive a one-time ‘Seva Nidhi’ package, which is a lump sum amount accrued from their own contributions, the government's contribution, and interest. After completing four years of service, 25 percent of Agniveers are absorbed as the regular cadre of the armed forces, based on merit and organisational requirements. The remaining 75 percent will return to civilian life with the Seva Nidhi package and skills training, enhancing their employability in various sectors.
India has already been grappling with record allocations when it comes to defence spending, especially on account of pensions in the wake of the one rank, one pension rule that came into effect in July 2014. And one of the primary reasons why the Agnipath scheme was introduced was to keep a check on the rising burden.
Soldiers recruited under the older order have longer service tenures, leading to higher cumulative salary costs compared to the short-term service under the Agnipath scheme.
Traditional recruitment also requires more extensive and repeated training programmes over a soldier’s career, increasing costs. In contrast, the Agnipath scheme’s short tenure aims to optimise training expenditure over the four-year period.
In fact, the pace of growth in pension allocations for the defence sector has seen a slowdown in the past couple of years. The total budgetary allocation on account of defence pensions for 2024-25 made in the interim Budget stands at Rs 1,41,205 crore, which is only 2.17 percent higher than the outlay in FY24. In FY21, before the Agniveer scheme that was implemented in June 2022, the allocation had seen an increase of above 18 percent.
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To be sure, though there is no clear way to ascertain a correlation between the reduction in defence pension outlays and the Agnipath scheme, data suggests that the government has been of late trying to reduce the burden in this category.
But doing away with the scheme, which aims to create a more financially sustainable model for the armed forces, may erode the efforts to lower the burden on account of defence pension expenditures.
In FY20, the increase was by 3.7 percent to Rs 1,12,079 crore. In FY23, the defence pension outlay was increased by 3.5 percent to Rs 1.19 lakh crore. In FY21, the defence pension outlay rose by 18.7 percent to Rs 1,33,825 crore.
However, in FY24, even after the implementation of the Agnipath scheme, the defence pension outlay increased to Rs 1.38 lakh crore, a jump of nearly 16 percent. Perhaps it was that a larger cohort of personnel who were serving under the earlier system came into the retirement pool in the year. While immediate savings might be moderate due to the need to still support existing pensioners, significant long-term savings are expected as the Agnipath scheme scales up and the proportion of short-term recruits increases. The government aims to enrol 1.2 lakh Agniveers under the scheme.
The additional financial burden that could arise from transposing those recruited as Agniveers to the traditional route will come in at a time when India is looking to lower its fiscal deficit to below 4.5 percent of GDP by FY26. Again, pensions will kick in many years after this FY26 deadline.
India is looking to lower its fiscal deficit to below 4.5 percent of GDP by FY26. And, to do this, the government has been keeping a check on its revenue expenditure that is estimated to grow at 3.2 percent, even as it maintains its infrastructure spending, seen rising at a much higher 16.9 percent in FY25.
Growth in revenue expenditure has been kept in check by keeping a lid on spending on account of pensions, defence expenditure, subsidies and major schemes such as the rural job guarantee plan.
Now, if the traditional model of recruitment is reinstated, where soldiers serve longer terms and are entitled to pensions, the government would face increased long-term pension liabilities, something the Agnipath scheme was designed to reduce significantly.
Increased pensions, salaries, and training expenses would also necessitate a higher allocation to defence in the budget, impacting other sectors or requiring higher revenue generation or borrowing.
