Monday, January 09, 2006

The pension reforms story goes on

Things are looking grim on pension reform. It's been 1.5 years of the UPA government, and they haven't yet got the PFRDA Bill to vote in Parliament. The left trade unions - who seem to have veto powers on this one - seem to have taken a tough stance of opposing reforms. There don't seem to be enough sane voices within the CPI or the CPI(M) to overcome the vested interests of the left trade unions. Things are just stuck.

My most-recent Business Standard column is titled What next on pensions. I argue that you don't need the PFRDA Act to build the New Pension System. We can proceed on building NPS right now, using alternative mechanisms for regulation, and do the PFRDA Act after the next elections, when the CPI(M) no longer has veto power over all legislation.

It's possible to sign a contract between government and the Central Recordkeeping Agency (CRA), and obtain enforceability through that contract. It's possible to have SEBI regulate pension fund managers. It's possible to have contracts with the banks and post offices who're the front-end of the new pension system. Through this three-pronged approach, it's possible to use contracts, and SEBI's powers on regulating fund management, to get the New Pension System up and running.

We've gone through some interesting flip-flops on this. Under the NDA government, Jaswant Singh and S. Narayan wanted to do NPS first, let it stabilise, and then do the law. When the UPA government came along, P. Chidambaram felt that it was feasible and important to do the legislation first. For a while, it looked like the legislation would go through (we got till an ordinance). But now things look gloomy i.t.o. the ability of the UPA to do economic policy, so I say, why not just go back to the previous strategy?

The very next day, Gautam Bhardwaj wrote an article, also in Business Standard, where he has a different take on the problem. He emphasises that the original goal of Project OASIS (1998-2000) was the great masses of the uncovered sector, and not civil servants. It was only later, in December 2002, that the Government of India chose to utilise the institutional mechanisms designed by Project OASIS for the purpose of solving the civil servants DC pension problem.

Now it looks like the baggage of the civil servants problem is slowing down the core task of a pensions regulator and a DC pension system. Gautam argues that what we ought to do is proceed on building PFRDA and NPS for the uncovered sector, while separately haggling with the left parties about what should be done for civil servants.

The third new piece on pension reforms is the briefing prepared by the new effort Parliamentary Research Service, which is located at the Centre for Policy Research in New Delhi. Their analysis of the PFRDA Bill, and associated briefing materials, seek to bring multiple perspectives to bear on pending legislation, and help Members of Parliament, and the public at large, become more effective in coping with pending legislation.

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