March 8, 1999
|
|
|
|
KAUTILYA Paying for a Grey Future They have old-age problems. We have old-age concerns . By Jairam Ramesh The council of foreign relations is a pillar of the American intellectual establishment. Its publication, Foreign Affairs, is arguably the most influential journal of its kind. In the latest issue, Peter Peterson, distinguished Wall Street personality and now president of the council, draws attention to what he calls the transcendent economic and political challenge for the developed world in the 21st century-namely, the ageing of its population. By 2010, 30 per cent of Japan, 25 per cent of Italy and Germany, 23 per cent of the UK and France and 20 per cent of the US, Canada and Russia will be over the age of 60. The dollar cost of the age wave, according to Peterson, works out to a minimum of $64 trillion (that is, 12 zeros), a mind-boggling number that could destroy the finances of many governments and trigger an economic crisis that will make the current slow-down look like a picnic. Where does India figure? In the year 2010, 9 per cent of India's population is expected to be over the age of 60. Our main challenge is that of a population that is getting younger; by 2010, 60 per cent of India will be below the age of 29. In its simplest terms, a younger population means faster job creation. That much should be clear. We have to generate something like 10 million jobs every year. Over the past decade, we have achieved six-seven million jobs annually on an aggregate basis. What is, however, less understood is that social security is also becoming a major issue here simply because of the absolute numbers, not proportions. It is therefore timely that the Government has just issued the first report of the expert committee of Project oasis (Old Age Social and Income Security), chaired by Surendra Dave, former chairman of UTI and SEBI. Around 23 million Indians are covered by contributory provident fund (PF) and another 11 million by non-contributory pension schemes. This means roughly one in six Indian families has this form of social insurance, although in terms of workers the proportion is about one in 10. Coverage under various pension plans of the LIC is around seven lakh. There has been no marketing of pensions as a product perhaps because the commission to LIC agents is just 2 per cent. If the objective is income security in old age, then the existing PF schemes will have to be radically restructured. Coverage itself cannot expand without such reforms. As noted economist Ashok Desai has written, in none of the existing pensions and savings funds does the income stream cover the costs of future pensions, a fundamental requirement of actuarial balance. In technical language, these funds are pay-as-you-go schemes, that is, the current year's contributions do not cover the same year's pensions. So there is an in-built fiscal time bomb that ticks away as life expectancy goes up. The oasis committee has done well to debunk the commonly held perception that the Indian PF system has low contribution rates. Instead, the weaknesses are, one, low rates of return brought about by the mandatory investment guidelines that allow the government to take away 80 per cent of the PF's money and, two, poor accumulation resulting from liberal withdrawal rules. The committee reveals that PF earnings are 2.5 per cent above inflation, while the average lump sum accumulation that is available to a PF member at age 60 is just about Rs 25,000. The committee has recommended incentives and disincentives to encourage accumulation and has suggested professional management of the PF system. Future reports hopefully will deal with reforms of the non-contributory government pension system, which has become a huge fiscal burden. In the railways, for example, for every 10 employees there are six pensioners. In 1998-99, state governments will fork out almost Rs 20,000 crore as pensions-around half of their expenditure on education. The Centre's pensions liability will be over Rs 10,000 crore. All of this is unfunded. But what about India's core problem-that of the vast unorganised sector? Very recently, the International Labour Organisation came out with an extremely valuable study called Social Security for All Indians. It has contributions from noted scholars, especially a classic by the late S. Guhan. Manmohan Singh introduced the National Social Assistance Programme in 1995-96 based largely on Guhan's intellectual inputs, which has also provided the inspiration for many of the DMK's social welfare schemes in Tamil Nadu. Guhan's estimate for a modest, nationwide minimum social assistance package is about 0.2 per cent of GDP. In 1998-99, this would have amounted to about Rs 3,000 crore, whereas the actual budgetary allocation was Rs 700 crore. The only way to find the funds is to cut fiscal deficit, trim the government, target subsidies and privatise faster. But more important than mere outlays is the delivery mechanism that has, inevitably, revolved around local bodies. Thus while the organised sector could do with privatisation and professionalisation, the unorganised sector will demand more public investment. But this won't happen unless we recognise India's organised sector has become a parasite, an oasis of relative prosperity in a desert of destitution. The author is secretary of the AICC's
Economic Affairs Department. |
|
Issue Contents | Write to us | Subscriptions | Syndication BUSINESS TODAY | INDIA TODAY PLUS | COMPUTERS TODAY © Living Media India Ltd |
 |
 |
