Leaky pensions

Hot on the heels of the scheme to provide guaranteed employment to the rural poor, which UPA Chairperson Sonia Gandhi wants extended to everyone, the government now wants to come up with a separate pension scheme for workers in the unorganised sector.

And since it is obvious these workers don’t always have enough money to contribute to such a scheme, the government will contribute 2.5 per cent of the monthly wages of these workers to their pension fund.

Given that there are about 350 million-odd workers in the unorganised sector, and their average annual income is around Rs 40,000, according to an ORG-AC Nielsen all-India survey done for the finance ministry, this means the government will have to shell out Rs 35,000 crore per year on the scheme, apart from the cost of actually administering the scheme.

The larger issue is whether the scheme can be administered at all. Today, the government has no unique and un-falsifiable identity for these workers, and considering that it is not able to provide such identities to around 40-50 million families that live below the poverty line (leakages in the PDS supplies for such families are reckoned at between 40 and 50 per cent), surely doing the same for over seven to eight times this number of people will be a logistical nightmare, and with even greater leakages?

Indeed, a study done by two Planning Commission experts in 2003 showed that the government does not even have a complete database for its own retirees and around a third of the pensions paid out each year were made to people who were dead, according to the mortality tables.

Even if you assume the government is somehow able to surmount this by finally going in for the citizenship card it has been talking of right from the time when T N Seshan was the chief election commissioner, how is the government going to determine just how much money will be paid to each worker’s pension account? Simple. By calculating 2.5 per cent of their wages, right?

The problem is the government has no data on individual wages either. So, it will have to do one of two things. It will have to either assume a normative wage for all employees in the unorganised sector, or will have to set up a full-fledged bureaucracy to actually collect such data.

Once it does this, it is obvious, even the unorganised sector will be subject to the same kind of red-tape that the organised sector has to face today, as inspectors go about verifying the details entered in wage registers.

Other serious issues that will come up will be those of daily wage earners who cannot afford to contribute more than a rupee or two a day towards such a scheme—if post offices or banks are to collect such small funds, the cost of remitting them to a central pension depository will become so high that it will render the scheme useless.

Essentially, any scheme that plans a direct cash subsidy to a large number of people is going to suffer from such infirmities. If the government is genuinely interested in helping the working classes, it just needs to liberate the economy so as to encourage more creation of jobs. Spending upwards of Rs 35,000 crore a year just to soothe the conscience of a few people in the government is a heavy price to pay.