toward universal pensions in India

A movement for universal pensions is gathering momentum in India. Pension Parishad, a non-governmental movement to secure a universal pension for all workers, was born on 24th and 25th February 2012 in Pune, ‘cultural capital’ of the state of Maharashtra. From May 7th to May 11th 2012 Pension Parishad launched its campaign with a dharna (protest) by more than 5,000 elderly persons at Jantar Mantar, New Delhi. Prabhat Patnaik, a well-known Indian economist, describes the movement and its demands.

[T]he demand for a non-contributory scheme is derivable from the rights-based approach, as indeed is the demand for universality. 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.” ….

[T]he Pension Parishad, which organised the Jantar Mantar dharna [protest], sees pensioners as “workers” and hence entitled to a proportion of the wage income as pension. Based on this, 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.2,000 [US$40] at the current price, whichever is higher. … [T]he point to note is that … the monthly pension payment should be far higher than the current measly sum of Rs.200 [US$4].

The Pension Parishad estimates that [those older than 60 years number about 100 million people] …. With some exclusions, e.g. those who pay income tax, or those belonging to the organised sector whose pensions already exceed the stipulated amount, …, that would still be around eight crore [80 million] people to provide for. At the rate of Rs.2,000 [US$40] per person per month, the total would come to Rs.192,000 crore [US$34.5 billion] which, in round figures, is two per cent of the GDP.

Questions will be immediately raised on how such resources can be found. But the required resources can be put in perspective as follows: the growth rate of the economy, as the Union government never tires of repeating, has been around eight per cent, or, in per capita terms just over six per cent. The resources required will be only one third of the increase in per capita income, i.e. a third of one year’s increase in the per capita income collected from the “average” Indian will be adequate to finance a universal pension scheme. …. This surely is affordable, especially when the Centre [central government?] has given away Rs.500,000 crore [US$90 billion] per annum, i.e. more than double the amount needed for a pension scheme, in the form of corporate and other tax reliefs in recent budgets.

Prabhat Patnaik, “For a universal old-age pension plan“, The Hindu, 10 May 2012.

This ‘universal pension’ leaves 20% of the age-qualified without benefits. The pension, then, is not universal. It promises a Universal Minimum Pension, but adds an income test by excluding those who have taxable income in old age. It is a pity that the movement chose to demand a less-than-universal pension, since ending tax relief on retirement saving alone would almost certainly cover the cost of extending a two thousand rupee pension to the entire 60+ population, with money left over.

The proposed ‘pension test plus income tax test’ nonetheless is a huge improvement over current means tests. The tests are simple, non-intrusive, and cost almost nothing to administer. Anyone over the age of 60 without a pension who pays income tax forfeits her right to a ‘universal’ pension for the year or years of her income tax returns. The question is, why deny pensions to taxpayers, when government provides these same people with subsidies (tax relief) for retirement savings? Wouldn’t a flat, universal pension be more attractive than tax relief for those on the lower rungs of the taxpayer ladder? And a portion of the pension could be recovered from higher-income pensioners simply by taxing the benefit as income. As for those who receive employment-based pensions, taxable or not, including them can increase support for a universal pension, at a relatively small fiscal cost.

Economist Prabhat Patnaik (born 1945) was a member of the Faculty of Economics and Politics of Cambridge University (UK) from 1969-1974. He taught from 1974 to 2010 at the Centre for Economic Studies and Planning in the School of Social Sciences at Jawaharlal Nehru University (New Delhi) and is now Emeritus Fellow at the same institution.

For more information on Pension Parishad, including videos with interviews of an activist and TV coverage of the May protest, go to HelpAge’s Pension Watch.

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