The extension of the NPS (New Pension System) Swavalamban scheme was one of the best things about the budget. The numbers mentioned by the finance minister in his speech show that the scheme is succeeded in enhancing the uptake of the NPS in the unorganised sector.
It’s good to see this focus on the NPS and one hopes that the government will also do its bit to push the NPS among other categories of savers. The NPS deserves to become the first choice for savings for a vast majority of people. However, it suffers from some built-in marketing disadvantages and will need relentless pushing for it to compete against the alternatives.
Under the Swavalamban scheme, small depositors get what is effectively a subsidy for joining the NPS. The Central government contributes R1000 per year for five years to each NPS account opened during 2010-11 and 2011-12. To qualify, the NPS account has to be between Rs 1,000 and Rs 12,000 a year. Basically, small depositors get a gift of Rs 3,000 from the government — not an insubstantial sum since it amounts to an extra 100 to 25%, depending on the size of the depositor’s own savings. Of course, the challenge will be to sustain participation after the gift period is over. It is inevitable that some participants will stop making fresh deposits after they stop getting gift.
Outside the Rs 12,000 range, the NPS is still practically unsold and thus unbought. While an outright subsidy is not justifiable in this category, some other innovative way of making investors think of the NPS before alternatives is needed. As things stand, the PFRDA is not even making a great effort at getting the information out to the potential market. Popularising the NPS will take sustained effort. Swavalamban is a good way of initiating it for one category of savers, but it will take a lot more for the NPS to become as popular as it should.