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Home / Columns / Is the new pension scheme a case of old wine in a new bottle?

Is the new pension scheme a case of old wine in a new bottle?

The Pradhan Mantri Shram Yogi Maan-dhan Yojana is yet another scheme with inbuilt flaws

columns Updated: Mar 08, 2019 09:24 IST
Yamini Aiyar
Yamini Aiyar
To deliver pensions, India needs a clear vision, strategy and institutional architecture
To deliver pensions, India needs a clear vision, strategy and institutional architecture(HT)

In a last ditch effort to woo voters, on March 5, 2019, Prime Minister Narendra Modi launched the Pradhan Mantri Shram Yogi Maan-dhan Yojana (PMSYMY) in Gujarat. Announced in the 2019 interim budget, the PMSYMY is billed as a “mega-pension scheme” to provide old age security for the unorganised sector worker. Designed as a contributory pension scheme, in which the government contributes a matching share to beneficiary contributions, the PMSYMY will provide an assured monthly income of Rs 3000 to beneficiaries from the age of 60 onward. Taken together with the Ayushman Bharat and other insurance programmes launched by the National Democratic Alliance (NDA) like the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY), says the Bharatiya Janata Party’s (BJP) publicity material, India’s 40 crore unorganised workers will now have access to comprehensive social security.

In its early days in power, social security, and particularly contributory pensions, emerged as an important pillar in the Modi government’s welfare politics. In its first two years in office, the government sought to articulate its vision for welfare in the grammar of “empowerment” and “poverty elimination”. Building a social insurance architecture was an important pillar through which this was to be achieved. This was visible in a 2015 speech given by the PM while launching insurance programmes. “Poor people need to be empowered” he said, “...then they will be geared up to fight poverty on their own strength and free themselves of poverty”. Reiterating this view in an Independence Day speech a few months later, he said “when the purchasing power of the poorest of the poor in the society increases, nobody can stop that economy to flourish...therefore it is our intention to give impetus to that…we have laid great stress upon social security and also the welfare of the poor”.

Interestingly, this early emphasis on insurance programmes, perhaps because of implementation failures that I will go on to discuss, soon disappeared from the political rhetoric. The narrative on empowerment and poverty alleviation gave way to showcasing individual schemes from Ujjwala, Ayushman Bharat, to housing and now the PM-Kisan. It is instructive that even after announcing the mega pension scheme in the 2019 interim budget, the BJP has kept references to the PMSYMY to a minimum in its election speeches. When the scheme has found mention, it is usually from the perspective of expanding government benefits to new constituencies of citizens who, to quote the prime minister, “haven’t received any help from previous governments”. Social insurance is no longer about empowerment and poverty alleviation. Rather, it is yet another sop to deal with the electoral fallout of the crisis in India’s economy. This can only be interpreted as a tacit admission of the failures of this government’s welfare strategy.

But politics aside, there is a strong case to be made for a greater emphasis on social security in India’s approach to welfare policy and, in this sense, the increased political focus on insurance was a step in the right direction. Welfare policy in India today faces the unique challenge of designing instruments that cater to the chronically poor on the one hand and the growing numbers of “vulnerable” populations — populations that are above the poverty line but vulnerable to falling back into poverty, even with a single income shock. According to the World Bank, this share of vulnerable populations has risen steadily from 44.53% in 1993 to 53.6% in 2011. Importantly, a significant proportion of this vulnerable population is young, lives in urban regions and is mobile — migrating frequently in search of work and young. Catering to this population through expanded insurance, including contributory schemes, makes eminentsense.

However, implementing contributory schemes is not easy. Traditionally, uptake of government pension schemes has been low. Nearly 90% of the GOI co-contribution budget however has lapsed every year due to low public response to the scheme and associated fiscal incentives. Modi’s social insurance schemes, like the Atal Pension Yojana, have fallen in to a similar trap. Surveys by the World Bank in Delhi, Himachal Pradesh and Odisha conducted in 2017 (referred to in a recent column by the World Bank in this newspaper) found that government insurance coverage was less than 5% of unorganised sector workers. Moreover, 50% of the total accounts held by low-income citizens in Atal Pension Yojana and National Pension Scheme are dormant. Irregular incomes, low awareness and difficulties in understanding the use of complex financial instruments are the primary reason for this. The current design of PMSYMY offers little by way of corrective measures to address these problems.

Finally, a robust social security architecture must necessarily cater to the chronically poor. And while the Modi government has spent these past five years launching new pension schemes, it has grossly neglected non-contributory pensions like the National Old Age pension scheme whose budgetary allocations are grossly inadequate and implementation challenges remain unaddressed.

What India really needs is a clear vision, strategy and institutional architecture for delivering pensions. In PMSYMY, what we have instead is yet another scheme designed to fail. Perhaps this is why it was launched days before the election: so voters can vote on the merits of its promise rather than performance.

Yamini Aiyar is president and chief executive, Centre for Policy Research

The views expressed are personal