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And pension for all

Print edition : Jun 01, 2012 T+T-
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AT JANTAR MANTAR in New Delhi on May 7, a dharna by the pension parishad demanding pension for the elderly and the indigent, among others.-SANDEEP SAXENA

A universal pension scheme for social protection must be part of a broader strategy of economic expansion different from the present neoliberal order.

INDIA must be one of the worst countries in the world in terms of not providing even minimal social security for most of its people. This is not just a major failure of the development project in the country it is also a significant cause of it, even though this is rarely recognised. There is good reason to argue that when public investment and social spending are lacking, this reduces the capacity of households and individuals to ensure healthy and educated lives as well as their ability to spend on a range of other goods and services.

So the problem of low per capita income is effectively perpetuated by low purchasing power of the people, which in turn does not create incentives for appropriate private investments. In other words, it is not only that low levels of gross domestic product (GDP) reduce the perceived possibility for providing citizens with their basic social and economic rights, it is also that the state's neglect of such rights and the associated failure to provide enough public resources for them reduces the possibilities for sustainable and equitable economic growth based on the domestic market.

There are many areas in which this absence of basic security is evident: in the rampant and growing food insecurity in the country; in the poor quality of essential health and sanitation services that can be accessed by most people; in the inadequate essential infrastructure (such as electricity and piped water supply) that is still not available to a shockingly large proportion of households, and so on. But it is also sharp in terms of the absence of social protection to cover the most basic contingencies of life.

This is particularly marked in the case of old age, and the neglect of the income security of the elderly, who form a growing part of the population. Much is often made of India's young population, but we have been remarkably resistant to recognising and addressing the problems of the growing numbers of senior citizens. We do not design our infrastructure or amenities taking into account their concerns; we invest little to address the health and other issues they face. Most of all, we leave it entirely to families to handle their consumption requirements in old age, even though that traditional safety net was never well developed for certain segments (such as widows) and has become increasingly fractured by the pressures of the aggressively commercialising economy.

Over May 7-11 in the nation's capital, an important dharna was held at Jantar Mantar to make the demand for a universal pension scheme applicable to all citizens of India. The pension parishad, which was formed earlier this year in Pune, has grown to reflect the coming together of several organisations and individuals. The dharna mobilised thousands of people from 18 States, including not just senior citizens from all walks of life, but also those who are not yet senior citizens but still recognise the importance of such provision for a decent society.

The basic demands of this group are eminently reasonable: a universal pension to be provided to all citizens (excluding those who receive pensions from other sources) at half the minimum wage currently amounting to about Rs.2,000 a month to be paid out of the State exchequer, for citizens above defined ages (55 years for men, 50 years for women, and 45 years for those from deprived communities). In addition, those who are unable to work for reasons beyond their control, such as those with disabilities, would also receive a similar pension.

Typically, when such demands are raised, two responses are immediately encountered. First, that the country and the government budget simply cannot afford such a large outlay of resources. Second, that such an expenditure will be inflationary and cause prices to rise such that the benefits to the people will be lost.

Consider the argument that the country as a whole is still too poor to provide for all of its elderly. This is simply not validated by international experience. Many developing countries have implemented such universal pension schemes, including those much poorer than India, with lower per capita incomes and less potential resources with the state. In Namibia, Botswana and Mauritius, such schemes have been around for quite a while now, while they have been implemented in the last decade in Bolivia and Lesotho. South Africa and Kenya have expanded earlier schemes and are trying to make them universal. China introduced a rural pension scheme in 2009.

One of the most interesting examples comes from India's neighbour Nepal, which started its universal pension scheme in 1995. At that time, the qualifying age was set at 75 years and the pension benefit was 10 per cent of per capita GDP. Thereafter, in the middle of the last decade, the government of Nepal reduced the age of eligibility from 75 to 70 years and to 60 in one part of the country. It also increased the size of the benefit to 25 per cent of GDP per capita, and announced that pensions would be paid to all widows over the age of 60.

The two critical features of such schemes are that they are universal (applicable to everyone above a defined age) and non-contributory (not dependent upon payments made during the course of a working life). These are essential elements of a truly effective social protection floor that is increasingly being promoted by some international organisations such as the International Labour Organisation (ILO). The point is that universal non-means-tested pensions automatically protect an entire population, in a way that contributory, earnings-related pensions never can.

This is particularly true in countries such as India where there is a high degree of informality and a significant proportion of the workforce is employed in the low-remuneration subsistence activities in agriculture or non-agriculture. It is also important as a means of implicitly recognising the economic contribution of the unpaid labour of women, many of whom are never recognised as workers even though they contribute to family and social reproduction in a variety of ways.

In terms of budgetary resources, obviously the amount will vary depending upon the age of eligibility and the amount given. With 60 years and Rs.2,000 a month, the estimated amount is in the region of around Rs.150,000 crore.

This seems like a huge amount, but is still less than one-third of the huge amount given away annually as tax giveaways to large corporations and others, according to the Finance Ministry's own calculations. And it is less than 2 per cent of GDP, which is less than what other (poorer) countries with universal pension schemes are currently spending. Obviously, therefore, bringing in such a scheme requires a rearrangement of the tax system, with a change in tax policies to ensure greater tax revenues.

Here the critics will cry that such a tax-and-spend strategy will discourage growth. But that need not happen at all indeed, such a strategy is more likely to put growth on a firmer footing because it will generate more effective demand through the multiplier effects of the pension incomes being spent. Since most of this money will go to people who will spend locally on goods and services, this will help to generate more productive employment in small-scale activities and create a bottom-up growth process.

The second major criticism of such a form of public spending is that it will be inflationary. This could well occur if there are supply-side bottlenecks that prevent the multiplier process from working through to create a virtuous expansionary cycle. So the point is to prevent that through minimising such bottlenecks. This is why schemes of social protection must be part of a broader growth and development strategy that seeks precisely to deal with such supply-side constraints. In other words, the focus for sustained growth should be on public investment in physical and social infrastructure that ensure the supply of necessary goods and services, while measures of social protection also ensure that demand keeps increasing from the population in a stable and inclusive way.

This is a strategy of economic expansion that is fundamentally different from the elite consumption, credit-driven bubble that has been created by the process of external financial integration. But it is likely to be more economically stable and politically sustainable and, above all, more humane and civilised. That is why the pension parishad's demand should be taken seriously, not just by those who will be directly affected but by everyone searching for different and more progressive and desirable ways of organising our economies.

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