Wednesday, January 24, 2007

Breaking the ice on pension reforms

There was an interesting development on the pension reforms front. A meeting of a few cabinet ministers and all state chief ministers took place, and underlined the broad-based political consensus on the New Pension System (NPS) and the PFRDA Bill. There now appears to be more clarity on moving forward with implementing the NPS without waiting for the PFRDA Bill.

What happened? See official statements from the PM, the FM, and from the meeting.

What do people make of this? Editorial commentary in Business Standard, Indian Express and Economic Times, The Times of India.Mukul Asher wrote in DNA: part 1 part 2, and Gautam Bhardwaj wrote in Business Standard. The one group that doesn't like these developments is the trade unionists. One link on the net says:

The Left parties today warned the UPA government that if it went ahead with its proposal to privatise the Pension Funds, it would be "risking" its very existence.

...

The top leaders of the CPI, CPI(M) and Forward Bloc made it clear that they stood for " a single pension scheme" which would ensure 50 per cent of the last pay of the salary drawn of the government employee.

Talking to UNI, CPI leaders A B Bardhan and Shamim Faizi said," The PM and the FM should realise that future of government employees and their savings can not be risked in the Stock market." " Any move to privatise the Pension Fund and handing over it to the private players will be resisted by the Left parties and the Manmohan Singh government should bother about its very existence before risking the future of the Provident Fund," they said.

The CPI leaders further made it clear that this was an" acid test for the government's relations with the Left." CPI(M) Polit bureau member and senior leader M K Pandhe said the left did not approve of a multiple Pension scheme." Paying pension to the employees, it is the responsibility of the government, which it wants to abdicate now. Where is the need for a separate agency for the purpose?" Mr Pandhe, who is also the CITU President, decried that the Prime Minister did not speak even a single word on the Left demand for a single Pension Scheme which, he said, would ensure 50 per cent of the last pay drawn of the government employee.

He said there was no justification in the contributory Pension Scheme as had been imposed on the employees since January 2004 whereby they have to contribute 10 per cent of their salary towards the funds collected in the Public Account, the CPI(M) leader said, The same should be diverted to the public Private Fund." This way the matter can be settled." CPI(M) Floor leader in the Lok Sabha Basudeb Acharia said the Left had submitted a number of suggestions to the government in this regard." But the government seems to be out to privatise the pension Funds, which we will resist in and outside the Parliament." CPI leader D Raja wanted to know who would be held responsible and accountable if the funds invested in the speculative market were lost as had been the case in several foreign countries.

But Mr Raja insisted that the discussions with the government still remained " inconclusive." Forward Bloc National Secretary G Devrajan said any social security scheme had to be "defined" and could not be decided by the market forces.

But it's a bit more complex than that. The left parties got roughly 5% of the votes in the last general elections, and trade union members probably accounted for a tenth of these. Within the left parties, Tripura and Kerala appear to have broken ranks with the trade union leaders. And, there are some signs of the Congress having the bill pass with help from the BJP [link].

For those seeking the back story leading up to these events, there is a great article by Surendra Dave. You might like to look at a blog entry on the pension reforms saga (January 2006), the backdrop of fiscal distress (September 2006), difficulties of pension guarantees (November 2006), and the problems of informal sector pensions (December 2006).

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