This could be India's biggest scam yet: while the government's annual pension bill, which was Rs 21,411 crore (Rs 214.11 billion) in 2001-02, grew around 18 per cent in the 1980s and 1990s, calculations by the Planning Commission's Perspective Planning Division Adviser Pronab Sen and Deputy Adviser Sibani Swain show that the growth could not have exceeded 11 per cent.
In other words, a huge number of pension accounts could be fake, or the original pensioners could be dead but the fact is not reported to the government.
While it is impossible to calculate the extent of the scam, given that no one knows since when these extra pensioners have been there, a limited exercise for the 1990s illustrates the magnitude of the operation.
Besides, given the fact that pension payments were quite low before 1990, it is likely that the problem became serious only in the 1990s.
Sen and Swain stumbled upon the possibility while working on pension projections for the Tenth Plan and beyond.
They found that pension payments of government employees would grow a little over 8 per cent nominally till 2010, assuming a 6 per cent inflation rate.
So, how does one explain the 18 per cent growth in the 1980s and 1990s? Even if the growth rate is raised to account for the higher inflation levels in the 1980s and 1990s, the growth in pension payout could not have exceeded 11 per cent.
And this is given the fact that after 1996-97, thanks to the Fifth Pay Commission, over 90 per cent of the salaries became pensionable.
This prompted Sen and Swain to examine past data. Since there was no uniform time series data available for the number of pensioners in the past two decades, the duo considered the employment figures for various government departments, pension payments, number of retirees every year and the average mortality rates to work out a model for calculating pension payments.
These were found to be matching with the figures for 1999-00, the only year for which actual figures on the number of pensioners are available.
The findings of this calculation are frightening. If you take 1986-87 as the base, and apply the Sen-Swain growth rate of 11 per cent, you find that between 1986-87 and 1996-97, extra pension of Rs 18,000 crore (Rs 180 billion) was paid.
However, these estimates were rejected because pension payments in 1987-88 could have been distorted by the Fourth Pay Commission.
Since there was also a sudden jump in pension payout in 1992-93, possibly due to the inclusion of more workers in the pension scheme, Sen and Swain did another calculation taking 1992-93 as the base year.
This showed that over the past four years, the excess pension payout was around Rs 7,000 crore (Rs 70 billion) a year, or around a third of the total payout.
Sen then calculated the excess pension payment during the post-pay commission period. Even this showed an excess payment of around Rs 5,000 crore (Rs 50 billion) a year, or around a fourth of the total payout.