No silver lining in sight

Updated on Aug 28, 2012 10:36 PM IST

Like many other countries, India should also ensure pension for its old people. Trilochan Sastry writes.

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None | ByTrilochan Sastry

Exactly 70 years after the Quit India movement meeting in Mumbai on August 9, 1942, a nationwide series of meetings was held on August 9, 2012 from the Freedom Park in Bangalore, under the auspices of the National Consortium for Universal Pensions. One meeting wanted freedom from colonial rule, and the other, freedom from want.

With over 90% of the work force in the unorganised sector, they wanted old age pension for all citizens, as prevalent in several other countries. A large number of workers from the unorganised sector, leading social activists, intellectuals, cinema and theatre personalities and politicians participated in it.

A key question they addressed was: does the government have enough money to do this? They discussed how the nation spends it tax revenues. Bailing out failing airlines with public money has run into tens of thousands of crores. Periodic raises in government salaries, including the recent Sixth Pay Commission hike, costs an additional estimated Rs. 150,000 crore if we include employees in Central and state governments, PSUs, banks and universities.

The World Bank criticised the Pay Commission's suggestion as the 'single largest adverse shock' to public finance. These salaries and pensions are inflation adjusted, and there is an automatic upward revision in DA periodically. The original projection of costs to the exchequer is a gross underestimate if we look at additional hikes due to inflation.

Taxes waived for the IT/software sector alone amount to several thousand crores per year. The tax foregone figures of the government of India show that about Rs. 51,292 crore was passed on as subsidy to the corporate sector, and Rs. 42,320 crore to individual taxpayers in 2011-12. The working poor in the unorganised sector do not earn enough to pay income tax and do not benefit from such tax write-offs.

An estimated Rs. 5.3 lakh crore was lost due to various tax waivers and shelters in 2011-12. The issue raised by the workers is: if the government can spend on the rich, why can't it spend on the poor. The argument that these subsidies to the industry benefit the poor by generating employment is not convincing as over 90% of the work force continues to be in the unorganised sector.

The taxes paid by the working poor are not insignificant. Though they don't pay income tax, they all pay sales tax when they purchase common household consumption goods, including food, clothes and personal items. In any case, the contribution of the working class is far more than the income it earns, or the taxes it pays. It too has a right to a share of the national tax revenues.

Labour in many cases doesn't get the statutory minimum wages. The policy of outsourcing jobs like security, cleaning, sweeping and so on means that companies do not have to pay any benefits like provident fund and pension to such contract staff. This also deprives them of pension. The current old age pension of Rs. 200 a month is inadequate and does not reach many people.

Universal pension plans have existed in several countries for many years. Germany passed the Old Age and Disability Insurance Bill in 1899. In India, the former President, some cabinet ministers and several bureaucrats have supported this demand. Perhaps they realise that the current levels of inequality are not sustainable. The poor pay the price for a corrupt and inefficient system. That system was not created by them. With an intelligent mix of better tax revenue management, and public funding, a universal pension plan is feasible. When we put that in place, we will move one more step towards freedom from want, and August 9 would acquire a new meaning.

Trilochan Sastry is former Dean, IIM, Bangalore

The views expressed by the author are personal

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