People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 19

May 13, 2012

For A Universal Old-Age Pension Scheme


Prabhat Patnaik    


INDIA’S social security system is woefully inadequate, compared even to those of several third world economies with no higher per capita incomes. Some states in India have fairly comprehensive social security schemes, notably Kerala, and also West Bengal and even Tamilnadu, but the scale of benefits they provide is modest. The union government however, despite its enormous fiscal powers, has been quite lackadaisical in providing social security. Even the Unorganised Sector Workers’ Social Security Act enacted by it, which came into force in 2009, is merely an enabling legislation; it does not seek to put on the statute books any specific comprehensive scheme of social security.


This niggardliness is particularly evident in the case of old age pension schemes. Some state governments no doubt have responded to the need to provide old-age pensions, but they have been inevitably hamstrung by their meagre resources. The union government no doubt has the Indira Gandhi Old Age National Pension Scheme, but it covers only the BPL population and persons above 65 years of age; and the pension amount it provides is an abysmal Rs 200 per month. Even so, the desperate need of the people for succor can be gauged from the fact that an estimated 1.65 crore persons access this scheme despite the meagre help it provides.


Even if we add together all the existing pension schemes, they collectively touch, at best, only the fringe of the problem. First, they are an assortment of specific schemes rather than an expression of a right to pension. Secondly, they do not provide universal coverage. Leaving aside the pension schemes of the organised sector, the others, such as they are, target specific groups of unorganised sector  workers; and even when they are not tied to specific occupational categories, such as the IGOANPS, they nonetheless cover only the BPL population, whose size, as is well-known, is arbitrarily fixed by the Planning Commission at a ludicrously low level. Thirdly, a large number of them insist on some contribution from the beneficiaries. And fourthly, the amount of pension they provide, as we have already seen, is pathetically meagre.


This is a serious problem, and one that is likely to become even more serious in the years to come because the increase in longevity and the fall in the birth rate would raise the percentage of the “old” in the population. It is estimated that by 2050, nearly a fifth of the world’s population will be above 60, and in India and China the proportion is likely to be around 24 per cent. All over the world, progressive forces are demanding the institutionalisation of a publicly-funded, universal, non-means-related, non-contributory pension scheme for the aged, to be accessed by them as a matter of right. This demand has also begun to be raised in India, as the dharna at Jantar Mantar between May 7 and May 11 has just demonstrated.


So pervasive, however, is the impact of the bourgeois media in India that even many otherwise well-meaning persons may not appreciate the rationale of this demand: why, they may ask, should a pension scheme be publicly-funded when those who draw the pension are persons who had earlier been employed by private employers? Why should it be universal instead of being means-related? And why should it be non-contributory: why should people who have not paid towards a pension scheme nonetheless enjoy a right to draw a pension?


The starting point of the answer to such questions is the basic social philosophical position which underlies the argument both for the welfare State and for socialism, namely that material deprivation is the result not of some individual failing on the part of the deprived but of the social arrangement within which they live. If there are people in society who are hungry and malnourished, then it is not their fault but that of the social arrangement under which they live; if there are people who are involuntarily unemployed then the reason for that lies in the social arrangement under which they live; if there is concentration of wealth at one pole and of poverty and destitution at another, then this is reflective not of some “natural order of things” but of the specific social arrangement under which people live. And this social philosophical position is not a matter of faith, but is analytically sustainable.


To overcome destitution, including that which afflicts the old, we have to change the social arrangement which produces it, and the first step in that direction is the use of the fiscal powers of the State. (The socialist argument is that such use, which also amounts to interfering with the distribution of resources, is not enough, and that the underlying property relations themselves have to be altered). And since the essence of democracy is that everyone must have adequate means of sustenance, access to it must be a right which is guaranteed by the State, upon whom falls the responsibility of adjusting the social arrangements for this purpose.


Now, the State has alternative means of raising its revenue. Contribution by beneficiaries towards a State-maintained pension scheme is just one way that the State can raise resources for such a scheme. But to make that a condition for pension payment, apart from being iniquitous, undermines the right to pension that must be a part of democracy. The demand for a non-contributory scheme therefore is derivable from the rights-based approach, as indeed is the demand for universality. Of course, if a person is already a beneficiary of an existing pension scheme, providing an additional pension to that person as part of a universal publicly-funded scheme appears unnecessary; but many would argue that a system of progressive direct taxation would automatically take care of this double benefit; hence such double benefit should not come in the way of universality.


But this last point belongs to the realm of minutiae. The basic argument for a universal, non-means related, non-contributory pension scheme, as a right ensured to the old, stands unimpaired. Of course, the “old” are not the only deprived section in our population; poverty, deprivation and hunger are rampant in our country, but that is an argument for extending the right to adequate means of livelihood to all, not for denying it to the “old”.


But, what, it may be asked, constitutes adequate means of livelihood? Here one can follow two different approaches. The first, which is used in much international discussion, is to define “adequate” in the sense of avoidance of poverty, which in India is defined officially as access to 2100 calories per person per day in urban areas and 2400 calories (later reduced to 2200 calories) per person per day in rural areas. The daily per capita expenditure level at which this was achieved in 2009-10 was Rs 36 in rural (for 2200 calories)and Rs 65 in urban areas, whose weighted average (if we are to avoid different amounts of pension payments), works out to Rs 46. At current prices this would be equivalent to around Rs 60, in which case the monthly pension amount on this criterion should come to Rs 1800.


The other approach, the one adopted by the “Pension Parishad” which had organised the dharna at Jantar Mantar, sees the pensioners as “workers” and hence entitled to a proportion of the wage income as pension. On this basis, the Parishad has demanded half the monthly minimum wage rate, or (in view of the differing minimum wage rates across states) a flat amount of Rs 2000 at the current price, whichever is higher, as the pension amount per month. This approach has merit. But, no matter what precise figure is adopted (and the two are pretty close to one another), the point to note is that on either approach the monthly pension payment should be far higher than the current measly sum of Rs 200.


The “Pension Parishad” puts the pensionable age at 55 for men, 50 for women and 45 for specially deprived communities, while international discussions take the age to be a blanket 60 for the third world countries. The “Parishad” estimates about 10 crore persons as belonging to these age groups. If some exclusions are made, e.g.,  for those who pay income taxes, or those belonging to the organised sector whose pensions already exceed the stipulated amount, or if the age is increased to say 60, there would still be around 8 crore persons to provide for. At the rate of Rs 2000 per person per month, the total amount would come to Rs1,92,000 crores which is, in round figures, 2 per cent of the GDP.


Questions will be immediately raised on how resources of this order of magnitude can be found. But the magnitude of the requisite resources can be put into perspective as follows: the growth rate of the economy, as the union government never tires of repeating, has been around 8 per cent , or, in per capita terms just over 6 per cent. The resources required will be only one third of the increase in per capita income, i.e. if only a third of the increase in one year in the per capita income of the country is collected from the “average” Indian then the resources so obtained will be quite adequate to finance a universal  pension scheme .The average Indian, of course, does not see his or her income rising at 6 per cent per annum in real terms, but this should make it even easier to garner the required resources from the well-to-do who corner the increases in income. In subsequent years, since the “real” pension per head will remain unchanged and the total amount will increase only at a rate slightly higher than the rate of population growth (owing to the increase in longevity), the percentage of GDP required for the scheme will keep going down, i.e. lesser and lesser proportions of the additions to annual income will have to be taken from the “average” Indian for financing the pension scheme. This surely is affordable, especially when the union government has given away Rs 500,000 crores per annum, i.e. more than double the amount needed for the pension scheme, in the form of corporate tax reliefs in recent budgets.


For raising these resources however fresh taxes will have to be levied. The National Commission on Enterprises in the Unorganised Sector had suggested a set of cesses to finance a far more modest social security scheme, costing only 0.5 per cent of the GDP. In international discussions, the emphasis has been on a combination of Tobin Tax (at 1 per cent) and profit tax ( 2 per cent of profits) for financing such a global scheme (which is supposed to cost $250 billion, at $1 a day for all those above 65 years in advanced countries and above 60 years in third world countries). Similar tax proposals can be worked out for India as well. The crucial need is to put democratic pressure on the State for launching such a scheme.