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Updated: May 11, 2012 00:18 IST

For a universal old-age pension plan

Prabhat Patnaik
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With the elderly likely to constitute a quarter of India's population by 2050, there is need for a publicly-funded, universal scheme that will overcome destitution among the aged

India's social security system is woefully inadequate, when compared even to those in third world economies with no higher per capita incomes. Some States in India have fairly comprehensive social security schemes — notably Kerala, also West Bengal and Tamil Nadu — but the scale of the benefits is modest. However, the Union government has been quite lackadaisical in providing social security despite its enormous fiscal powers. Even the Unorganised Sector Workers' Social Security Act, 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 stinginess is particularly evident in old-age pension schemes. Some State governments have responded to the need to provide old-age pensions, but are hamstrung by their meagre resources. The Union government's Indira Gandhi Old Age National Pension Scheme (IGOANPS) covers only the Below Poverty Line (BPL) population and persons above 65 years of age; the pension amount it provides is an abysmal Rs.200 per month. Even so, an estimated 1.65 crore people access this scheme, an indication of the desperate need for succour.

Four negatives in schemes

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

This is a serious problem, and likely to become even more so in the years to come, because the increase in longevity and the fall in the birth rate will raise the percentage of the “old.” By 2050, nearly a fifth of the world's population will be above 60. 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 a dharna at Jantar Mantar (May 7-11) 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 were earlier 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 did not pay 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 that underlies the argument both for the welfare state and for socialism, namely, material deprivation is the result not of individual failing on the part of the deprived but of the social arrangement within which they live. This position is not a matter of faith; it is analytically sustainable.

To overcome destitution, including that which afflicts the old, we have to change the social arrangement which produces it. The first step in this direction is the use of the State's fiscal powers. 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, on whom falls the responsibility of adjusting the social arrangements for this purpose.

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. Therefore, the 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.”

Adequate means

But what, it may be asked, constitutes adequate means of livelihood? Here one can follow two different approaches. The first, 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 2,100 calories per person per day in urban areas and 2,400 calories (later reduced to 2,200 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 2,200 calories) and Rs.65 in urban areas, whose weighted average (if we are to avoid different amounts of pension payments), is 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.1,800.

The other approach, the one adopted by the Pension Parishad, which organised the Jantar Mantar dharna, 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 at the current price, whichever is higher. 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 both approaches conclude that 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 fix it at a blanket 60 for third world countries. The Parishad estimates that about 10 crore people belong to these age groups. With some exclusions, e.g. those who pay income tax, or those belonging to the organised sector whose pensions already exceed the stipulated amount, or if the age is increased to say 60, that would still be around eight crore people to provide for. At the rate of Rs.2,000 per person per month, the total would come to Rs.192,000 crore 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. The average Indian of course does not see his or her income rising at six 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 to finance the pension scheme. This surely is affordable, especially when the Centre has given away Rs.500,000 crore 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.

For raising these resources, however, fresh taxes will have to be levied. The National Commission for Enterprises in the Unorganised Sector (NCEUS) 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 one per cent) and profit tax (two 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.

(Prabhat Patnaik is a UGC Emeritus Fellow at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Email:

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In welfare states like India, the expenditure on welfare is more and we are experiencing the same scenario since independence. The state governments are spending huge money towards social welfare, but one more aspect universal social security is totally neglected by both state and central governments. With proper UID the scheme should be implemented.

from:  Laxmanrao.G
Posted on: May 14, 2012 at 09:55 IST

Why tax the tax payer? Better all government departments are made to work clear 8 hours work and cause productivity and stop all over time wages that wages saved can be put in government bodiess buying and buying and sales profits booked may be diverted to the corpus fund of old age pensions, after all sixth pay commission recommendation is paying shameless exorbitant wages to government servants from tax payers contributions to revenue and meeting all kinds of perquisites like petrol allowances very generously paid from out of tax payers moneys and all such perks should be stopped forthwith, as their sixth pay commission recommended salaries are very generous and house rent allowances be curtailed forthwith to meet social welfare measure,as these wages of government servants far exceeded their real wage abilities several times and poor people number is progressively increased by extravagant governments by giving all kinds of subsidies except for poor.

from:  dr. g. balakrishnan
Posted on: May 13, 2012 at 21:31 IST

It is hightime that this scheme needs to be brought in within next few years and if there be a small taxation as cess in the Income tax and this could be utilised for people with age of 65+ as old age pension who have UID cards.

from:  Ramalingam
Posted on: May 11, 2012 at 15:21 IST

A thought provoking article aimed at diverting our attention towards an otherwise
neglected topic.The reforms suggested by Mr.Patnaik are phenomenal ,corroborated
by proper facts and figure.However,I feel that the increase in taxes may not go well with the government already beleaguered by so many controversies.

from:  Arijit Chatterjee
Posted on: May 11, 2012 at 11:55 IST

The author has done good job by pointing out the issues and need to have
universal pension scheme for old peoples. The solutions provided are
pertinent to the discussion except increase in taxes on employed
community because by doing this govt will jeopardize its vote bank.

from:  nitish
Posted on: May 11, 2012 at 10:45 IST

A very good scheme suggested by Mr.Patnaik which can be implemented as
a social security for old age.

from:  P.S. Ganesan
Posted on: May 11, 2012 at 07:11 IST

There is always gap between Intelligentia thinking and Actual reality. In this case a top UGC brain for Economic Studies and Planning, proves that reality and his thinking are Planets and light years away. If he lives in India, can he tell us how Rs.2,000 can support a person for a month in the current prices. Why should any attempt be made to do something that is neither adequate for the pensioner nor sustainable by the Government. Our intelligentsia, rather than looking at west for the solutions and adapting them in a tiny way, should think about novel ways that will satisfy every body involved. The name-sake or lip-service schemes cannot solve our problems. For 0.5% of the amount, we can create online easy-to do jobs for aged and disabled, that they and the exchequer will be very happy of, something like

from:  Raj Subramanian
Posted on: May 11, 2012 at 05:18 IST

The article raises a couple of issues. 1st whether a person is entitled to pension even if he has not contributed to it. Every person has the right to livelihood & if he did not earn enough to provide for his old age, more so from the state. Otherwise we cannot claim ourselves to be human beings. 2ndly where does the fund come from? The IT payers should not grudge a minimum cess. Inspite of our continuous harping that IT payers are always burdened the fact remains that indirect taxes in India are more than the direct. But yes the IT base needs to be broadened. The basic pension amount of Rs. 1800/ 2000 should be available to all Indians above 60/65. One always has the option of investing during working life to have returns after retirement on top of the basic state given pension.
But the crux of the problem lies in the delivery mechanism . How do you deliver the pension to the remotest corner of the country when we do not have a databank of the whole populace or an identity number?

from:  Upali Roy
Posted on: May 11, 2012 at 01:51 IST

A welfare state cannot make money out of thin air. I am surprised to see that people like PP has taken for granted the current growth rate of 8%. We have not yet tackled the problem of giving ration cards to eligible people and we want to continuously increase the burden on central govt. with these easy to be befooled welfare schemes, which would hurt the economy in the long-run.

from:  Sakal
Posted on: May 10, 2012 at 23:31 IST

There is a factual error in Prof.Patnaik's article,eventhough it doesnot nullify the relevence of the subject matter he raised,i think it is important to point out the mistake.As per notification issued by Union Govt last year,the eligible age for pension under IGNOAPS has brought down to 60 years from 65 years .secondly people having age above 80 years are eligible for a pension of 500 rupees per month under this scheme,as per same notification

from:  Jyothis K A
Posted on: May 10, 2012 at 22:02 IST

This is a very interesting article and discussion. HelpAge
International and our partners are working to ensure people in older
age live dignified and secure lives. A minimum income in older age is
essential for this, not least in the face of declining capacity to
earn an income and therefore contribute to their families. A minimum
income in the form of a social pension could support be used by the
poorest to meet basic consumption/food needs and for the poor or near
poor it could be the little extra needed to invest in livelihoods,
health costs or the additional household income to support children to
have better earning opportunities. For the wealthy, the 2000Rps is a
tiny fraction of their income and could be clawed back through
taxation but it is indicative of the Indian citizen's right to a
minimum. When administrative capacity improves it could be possible to
exclude pensioners or the wealthy through a means test. Until then
keep eligibility transparent to minimize corruption.

from:  Andrea McPherson
Posted on: May 10, 2012 at 21:42 IST

When will politicians stop spending money that they don't have? They know that everyone likes a freebie. Those in power benefit a few by misuse of power, and then make largesse statements about universal care -- which realistically cannot be provided. Push the government out of this by giving an option to earmark a certain percentage of your tax payments (welfare allocation) to the charity of your choosing from a list approved by the IT department. These charities will provide more bang for the buck than the government (with its uninterested bureaucrats and politicians) will ever provide.

from:  Thomas George
Posted on: May 10, 2012 at 20:57 IST

before talking about old-age pension,govt. and media should concentrate
about providing work to people who CAN and are WILLING to work but can't
find it.according to planning commission there are about 30% of
households in india like that

from:  nidumolu ravi teja
Posted on: May 10, 2012 at 20:02 IST

Prabhat Patnaik has written a nice theoretical article.Very academic and brilliantly formulated. But what has it to do with the reality around 700 million poor Indians face day by day.
Foreigners who go the first time to India suffer from a culture shock and for many is it o ften unbearable to cope with the misery and poverty of the poorest of the poor.

The father of the nation GANDHI dreamt of an India with chances and opportunities for all Indians.

Often I could read in German newspapers of a "shining India". Sure there is a shining India for a prosperous, educated and skilled Indian middle class but for 700 million poor Indians no welfare state or any welfare system exists.
India is called the largest democracy on earth. A democracy can only work with a working welfare system (medical insurances, pensions, medical care, unemployment benefits, etc).

A universal old-age pension plan would be a step that would help the majority of poor Indians to meet their basic needs.
By 2050, nearly a fifth of the world's population will be above 60. 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.
Political parties, trade unions, NGOs, influential institutions should figure out solutions to create a univeral old-age pension plan for India.

Education, literacy, a social welfare system, a universal old-age pension plan if one day passed in parliament and implemented would make India really a shining country in South East Asia and Gandhi´s dream of equality and opportunities for all Indians would come true.
But up to now no political party or government has worked seriously on that plan to overcome corruption and poverty in India.

from:  Kurt Waschnig
Posted on: May 10, 2012 at 19:57 IST

This is a serious issue indeed. But can we give priority to formulating a universal pension scheme for people who have already worked in their youth (although in non organised sector)and have not saved for their end days over more serious issues like providing for schools and hospitals to the underprivileged, making night shelters for the homeless and making strong physical infrastructure for our country. We are not a huge economy like some of the western nations, and we have to make good of our limited resources. Although the idea sounds good, noble and genuine, but it has to wait for some time to materialize.

from:  Kamlesh Chaturvedi
Posted on: May 10, 2012 at 17:39 IST

I was shocked to see old ladies & lame men in SBI branch in my home town, getting their forms filled for claiming 200/- or 300/- pension, and felt this to be a cruel joke. The states are ready to give free power to the rich farmers or tax holidays to rich corporates or low tax rates for gold but have not thought about well being of people in their old age. Assuming that per capita daily expenditure in rural areas now would be 40/-, let there be a pension of 1,200/- pm for the rural old & 1,800/- for the urban old due to extra costs. Let each state fund it by increasing taxes on gold, professional tax & electricity charges for rich farmers and reducing the tax holidays for the rich.

from:  Gurinder Singh
Posted on: May 10, 2012 at 17:33 IST

Mr. Patnaik has raised a very important issue. It is very much required that a socialistic approach towards issues like poverty, hunger and old age, should be instantiated. The solutions provided by Mr. Patnaik are also applaudable. There are thousands of millionaires in our country whose incomes are more than hundreds and thousands times greater than that of the poor people. The government should increase taxes on these people so that the needs of poor people can be supplemented. After all, we all are humans and we have to work for the benefit of the whole race.

from:  Imran ali
Posted on: May 10, 2012 at 16:44 IST

My comments are as follows: (1) A Welfare State must take care of the old; question is how? (2) Is the monthly pension in cash is the only option for taking care of all those who are having no income at all? (3) In the context of rampant corruption in almost all government monitored schemes, is it sensible to expect implementation of a pension scheme with zero contribution from the recipients? (4) In case of payments to pensioners in far flung villages, what sort of payment mechanism is required and whether logistical support can be made available for arranging such payments? (5) Without building the necessary corpus to pay monthly pensions in a systematic way, the scheme can just collapse in the initial stage itself. (6) If the State governments cannot efficiently run Public Distribution System which is basically aimed at making available food grains to the poor at a reasonable cost, how can we trust the same governments to pay pensions to the poor?

from:  Narendra M Apte
Posted on: May 10, 2012 at 16:35 IST

The idea is a commendable one. Indeed, it must be noted that this is one of the
pillars on which the success of the Western nations was built. Of course, there
were some problems primarily due to the difficulty of predicting the future
decades in advance which have left those systems in a financially precarious
situation. However, sound planning should help reduce the risks of nasty surprises
in 30-40 years time even though one can never rule them out.

The basic system is for everyone to contribute to a common fund a certain
percentage of their income, with high earners contributing more and also receiving
back more at the end. Herein lies the greatest difficulty. In a country like India
where high earners notoriously resort to tax evasion, how is the state going to run
such a system at all? We need to seriously address the problem of tax evasion and
bureaucratic reform and consolidation before we can start any such grand scheme.

from:  Vivek
Posted on: May 10, 2012 at 15:26 IST

universal pension scheme as noted in the article is mainly required for the old age people in the country. Although there are many deprived people in the country, especially old age people can not able to do the work due to the physical covering them under the universal pension scheme needs urgent action.In this regard govt has to impose some tax like Education cess on average Indian to get the resources for this pension scheme.It's high time govt.should take swift action in this highly needy situation.

from:  manoj
Posted on: May 10, 2012 at 12:19 IST

It is a good article/argument. Worth consideration by the STATE. As a society professing to be "WELFARE" in all respects, vulnerable sections of the society, such as aged, women, and children must not be ignored.
Whereas there are reports of increasing number of billionaires /trillionaires amongst our business people it is a sad story that we do not care for vulnerable sections of the society. Even the increasing number of millionaires amongst our lawmakers, whose net worth also is reported to be increasing every year, should make us seriously think on the universal old age pension.
The largesse being paid to industries/businesses should be a pointer in the correct direction.

from:  Shankar
Posted on: May 10, 2012 at 11:35 IST


One main thing about old age pension about which no one seriously
concerned is about depreciation of money. if we today get Rs 100
but for next year its purchase capacity become less.

from:  nayan kumar tiwari
Posted on: May 10, 2012 at 10:07 IST

This write-up not only emphasises the need for universal pension but has also suggested means to raise the resources. The figure of Rs.2000/- per month per person though appears to be reasonable, against the present Rs.200/-, in fact, in to-day's cost it would meet about 75% only, excluding old-age related medication. Still, it is ideal to begin somewhere rather than wait ideal condition.
Let nor perfect be enemy of the good.

from:  S.R.Nagarajan
Posted on: May 10, 2012 at 02:13 IST

If the bankruptcy of social democracies like Greece and the
unsustainable growth of welfare spending (Social Security, Medicare
and Medicaid) in America is anything to go by, India would do well
and avoid a federal welfare scheme. The moment you have money (I
assume it will have to be generated by additional taxes) being sent
to the central govt whether it is Delhi or DC, you can GUARANTEE that
people in the states loose control over how it is spent. The special
interests will spend no time circling the pot of gold in Delhi.
Politicians will not waste any time to divide that money for
political reasons. India, be smart & learn lessons from the USA. We
are already too deep in debt to ever come out of the hole, but you
can still avoid our situation by keeping your welfare spending at the
state or local levels where you have more control over how it is
being spent and whether it is helping the people it is supposed to

from:  M Hayes
Posted on: May 10, 2012 at 01:50 IST

Old people should earn their pension. If they are assured of old age pension they may not while young have any incentive to save for the rainy days. They may consume and consume while young only to indent on the younger generation when they become old. In the bygone decades people used to be proud of being independent without indenting on their children and grandchildren. Now people seem to have no sense of shame to demand a handout from the younger generation. If everybody sits on a palanquin without working soon there will be nobody to carry the palanquins.

from:  T.S.Krishnaswamy
Posted on: May 10, 2012 at 01:45 IST
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