For a universal old-age pension plan

With the elderly likely to constitute a quarter of India's population by 2050, there is need for a publicly-funded, universal scheme that will overcome destitution among the aged

India's social security system is woefully inadequate, when compared even to those in third world economies with no higher per capita incomes. Some States in India have fairly comprehensive social security schemes — notably Kerala, also West Bengal and Tamil Nadu — but the scale of the benefits is modest. However, the Union government has been quite lackadaisical in providing social security despite its enormous fiscal powers. Even the Unorganised Sector Workers' Social Security Act, which came into force in 2009, is merely an enabling legislation; it does not seek to put on the statute books any specific comprehensive scheme of social security.

This stinginess is particularly evident in old-age pension schemes. Some State governments have responded to the need to provide old-age pensions, but are hamstrung by their meagre resources. The Union government's Indira Gandhi Old Age National Pension Scheme (IGOANPS) covers only the Below Poverty Line (BPL) population and persons above 65 years of age; the pension amount it provides is an abysmal Rs.200 per month. Even so, an estimated 1.65 crore people access this scheme, an indication of the desperate need for succour.

Four negatives in schemes

Even if we add up all the existing pension schemes, they touch only the fringe of the problem. First, they are an assortment of specific schemes rather than an expression of a right to pension. Second, they do not provide universal coverage. Leaving aside the pension schemes of the organised sector, the others, as they are, target specific groups of unorganised sector workers; even when not tied to specific occupational categories, such as the IGOANPS, they cover only the BPL population, whose size is arbitrarily fixed by the Planning Commission at a ludicrously low level. Third, a large number of them insist on some contribution from the beneficiaries. And fourth, the amount of pension they provide, as we have already seen, is pathetically small.

This is a serious problem, and likely to become even more so in the years to come, because the increase in longevity and the fall in the birth rate will raise the percentage of the “old.” By 2050, nearly a fifth of the world's population will be above 60. In India and China, the proportion is likely to be around 24 per cent. All over the world, progressive forces are demanding the institutionalisation of a publicly-funded, universal, non-means-related, non-contributory pension scheme for the aged, to be accessed by them as a matter of right. This demand has also begun to be raised in India, as a dharna at Jantar Mantar (May 7-11) demonstrated.

So pervasive, however, is the impact of the bourgeois media in India that even many otherwise well meaning persons may not appreciate the rationale of this demand. Why, they may ask, should a pension scheme be publicly-funded when those who draw the pension were earlier employed by private employers? Why should it be universal instead of being means-related? And why should it be non-contributory? Why should people who did not pay towards a pension scheme nonetheless enjoy a right to draw a pension?

The starting point of the answer to such questions is the basic social philosophical position that underlies the argument both for the welfare state and for socialism, namely, material deprivation is the result not of individual failing on the part of the deprived but of the social arrangement within which they live. This position is not a matter of faith; it is analytically sustainable.

To overcome destitution, including that which afflicts the old, we have to change the social arrangement which produces it. The first step in this direction is the use of the State's fiscal powers. Since the essence of democracy is that everyone must have adequate means of sustenance, access to it must be a right which is guaranteed by the State, on whom falls the responsibility of adjusting the social arrangements for this purpose.

Contribution by beneficiaries towards a State-maintained pension scheme is just one way that the State can raise resources for such a scheme. But to make that a condition for pension payment, apart from being iniquitous, undermines the right to pension that must be a part of democracy. Therefore, the demand for a non-contributory scheme is derivable from the rights-based approach, as indeed is the demand for universality. Of course the “old” are not the only deprived section in our population; poverty, deprivation and hunger are rampant in our country, but that is an argument for extending the right to adequate means of livelihood to all, not for denying it to the “old.”

Adequate means

But what, it may be asked, constitutes adequate means of livelihood? Here one can follow two different approaches. The first, used in much international discussion, is to define “adequate” in the sense of avoidance of poverty, which in India is defined officially as access to 2,100 calories per person per day in urban areas and 2,400 calories (later reduced to 2,200 calories) per person per day in rural areas. The daily per capita expenditure level at which this was achieved in 2009-10 was Rs.36 in rural (for 2,200 calories) and Rs.65 in urban areas, whose weighted average (if we are to avoid different amounts of pension payments), is Rs.46. At current prices this would be equivalent to around Rs.60; in which case the monthly pension amount on this criterion should come to Rs.1,800.

The other approach, the one adopted by the Pension Parishad, which organised the Jantar Mantar dharna, sees pensioners as “workers” and hence entitled to a proportion of the wage income as pension. Based on this, the Parishad has demanded half the monthly minimum wage rate, or (in view of the differing minimum wage rates across States) a flat amount of Rs.2,000 at the current price, whichever is higher. This approach has merit. But no matter what precise figure is adopted (and the two are pretty close to one another), the point to note is that both approaches conclude that the monthly pension payment should be far higher than the current measly sum of Rs.200.

The Pension Parishad puts the pensionable age at 55 for men, 50 for women and 45 for specially deprived communities, while international discussions fix it at a blanket 60 for third world countries. The Parishad estimates that about 10 crore people belong to these age groups. With some exclusions, e.g. those who pay income tax, or those belonging to the organised sector whose pensions already exceed the stipulated amount, or if the age is increased to say 60, that would still be around eight crore people to provide for. At the rate of Rs.2,000 per person per month, the total would come to Rs.192,000 crore which, in round figures, is two per cent of the GDP.

Questions will be immediately raised on how such resources can be found. But the required resources can be put in perspective as follows: the growth rate of the economy, as the Union government never tires of repeating, has been around eight per cent, or, in per capita terms just over six per cent. The resources required will be only one third of the increase in per capita income, i.e. a third of one year's increase in the per capita income collected from the “average” Indian will be adequate to finance a universal pension scheme. The average Indian of course does not see his or her income rising at six per cent per annum in real terms, but this should make it even easier to garner the required resources from the well-to-do who corner the increases in income. In subsequent years, since the “real” pension per head will remain unchanged and the total amount will increase only at a rate slightly higher than the rate of population growth (owing to the increase in longevity), the percentage of GDP required for the scheme will keep going down, i.e. lesser and lesser proportions of the additions to annual income will have to be taken from the “average” Indian to finance the pension scheme. This surely is affordable, especially when the Centre has given away Rs.500,000 crore per annum, i.e. more than double the amount needed for a pension scheme, in the form of corporate and other tax reliefs in recent budgets.

For raising these resources, however, fresh taxes will have to be levied. The National Commission for Enterprises in the Unorganised Sector (NCEUS) had suggested a set of cesses to finance a far more modest social security scheme, costing only 0.5 per cent of the GDP. In international discussions the emphasis has been on a combination of Tobin Tax (at one per cent) and profit tax (two per cent of profits) for financing such a global scheme (which is supposed to cost $250 billion, at $1 a day for all those above 65 years in advanced countries and above 60 years in third world countries). Similar tax proposals can be worked out for India as well. The crucial need is to put democratic pressure on the State for launching such a scheme.

(Prabhat Patnaik is a UGC Emeritus Fellow at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi