Amid pension debate, do not forget principles, social obligations

It is not the proportion of the population that is important but the fact that all of them are old.
Soumyadip Sinha
Soumyadip Sinha

India has an extremely low tax-GDP ratio, ranking below 100 in the world list of countries. Besides, much of the tax revenue comes from the poor through indirect taxes. Despite a striking increase in income and wealth inequality in the neo-liberal era, this ratio has not risen much, which underlines the tax system’s lack of progressivity. Yet, a rising share of government revenue is being diverted towards big capitalists in the name of promoting growth, the latest instance being the Production Linked Incentive Scheme (PLI). Not surprisingly, social sector expenditure is being curtailed, and even the MGNREGS is starved of funds.

The change in the pension scheme for government employees introduced by the Vajpayee government was part of this parsimony that is the obverse of the largesse towards the rich. By bringing in a self-contributory element and investing pension funds in the financial market, this “reform” reduced government contribution; it imposed a tax on each employee for his or her own pension, thereby offloading pensioners from the general revenue; and it made the pension amount uncertain and dependent on the market by making the pensioner rather than the government bear the investment risk.

The main argument for the change that it reduced the burden on the exchequer was an illicit one. A government must raise revenues to meet its social obligations rather than reneging on its social obligations on the plea of inadequate revenues. Whether pensions should be part contributory or wholly budget-financed must, therefore, be debated independently of the prevailing state of government finances; it has to be discussed on the basis of principles.

This simple point has escaped many. Some have termed the return to the old scheme currently being promised by several non-BJP parties as “immoral”, since it leaves the financial burden that would emerge only in later years to a future government, thereby garnering current popularity at the expense of some hapless government in the future. This accusation, however, is logically flawed, for then any infrastructure project whose gestation period exceeds the life of a single government should be considered “immoral”.

The “morality” of committing a future government to expenditure promised now must be judged entirely by whether the expenditure is worthwhile; bequeathing a burden to the future is not in itself immoral. The issue, therefore, is whether a pension amounting to a fixed proportion of salary should be paid by the government from the budget. If we believe it should, the government must then raise the revenue for it, for which, as suggested earlier, there is ample scope.

On the question of the worthwhileness of the old pension scheme too, arguments are being advanced which are quite irrelevant. One says that since the private sector has a pension scheme that insists on beneficiary contribution, there is no reason why the government should do otherwise. There is no earthly reason, however, why the state should emulate the private sector. A second argument talks of the minuscule proportion of the population that would benefit from a return to the old scheme, contrasting it with the large budgetary outflow it would entail. But this, too, is irrelevant: it is not the proportion of the population that is important but the fact that all of them are old, and any society worth its name must treat its old persons considerately.

There are two obvious arguments in favour of the old pension scheme, that is, charging the general exchequer rather than taxing the beneficiaries for the pension amount. First, a fair number of government employees have only modest means. Many even fall below the income tax exemption limit; taxing them for their pension payments is clearly invidious.

They may be better off than the urban and rural poor such as agricultural labourers, poor peasants and fishermen, but that is hardly pertinent: The demand for a minimum wage, after all, is not invalidated because it exceeds the incomes of a large number of people.

It is also true that many government employees are very well off, but additional taxation that has to be levied for meeting pension demands from the exchequer will impound resources from them anyway so that the effective transfer, if the old system is revived, would be from the well-off in society to the relatively poorer segments of government employees.The second argument has to do with the conception of the state. Employees of the state, whether at the Central or the state government level, are, in a sense, employees of society as a whole; they are conceptually on a different footing from employees of private firms, which is why terms like “civil servant” or “public servant” are used for them. They are meant to serve society. Whether or not they do so is a separate matter; if they do not, then that has to be rectified. But the conception of state employees as employees serving society as a whole must not be given up; that conception demands that not just their salaries but their pensions too must be borne by society as a whole from the resources it makes available to the state. Their pensions, it follows, must come out of the state exchequer.

Indeed a failure of neo-liberalism, unlike old liberalism such as that of John Maynard Keynes, is not to see the state ideally as representing society as a whole, as working for a set of objectives different from private employers. Judging public enterprises by their profitability, exactly on par with private enterprises, is an example of this failure. In formulating a pension policy, we must not repeat this failure.

Any discussion of pension policy for government employees will remain incomplete if a general policy of non-contributory pensions for the vast number of senior citizens who do not have access to any institutional pension schemes is not mentioned. The government-run non-contributory pension scheme currently provides ₹200 per month to a recipient between 60 and 79 and ₹500 above that age. This is ludicrous; providing a living non-contributory pension of about ₹3000 per month must be a duty of society to the old. Resources for this can be raised if there is a political will: India, after all, still lacks not just a meaningful wealth tax but even an inheritance tax that most capitalist countries have.

Prabhat Patnaik

Professor Emeritus, Jawaharlal Nehru University, New Delhi

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