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Cost & equity counter-arguments on pensions

-The Business Standard

The conflict between a universal and a targeted approach to social welfare which has held back the proposed food security law is now emerging in the ongoing movement for a universal pension.

While economist Jean Dreze, who has been demanding universal old age pensions as part of a platform called Pension Parishad, has called for abolition of the Below Poverty Line (BPL) targeting system in all pension schemes, calling it anti-aged and anti-poor, N C Saxena, member of the National Advisory Council, feels it is not practical or financially viable to go for universalisation of pensions.

Dreze, who has done studies on the economic plight of widows, detailed to Business Standard in an emailed response on why he felt BPL targeting did not work. Saxena says financial discretion is needed while considering universal rights.

Says Dreze: “Not only is the official poverty line extremely low and, hence, not meant as an eligibility condition for social support, identifying BPL is very difficult. A BPL Census invariably turns out to be a hit-or-miss affair. Third, someone who is poor today may not be poor tomorrow and vice versa, but the BPL lists are very rigid — in some states they go back Rs 5 years. Fourth, BPL targeting is very divisive; it undermines the strength and unity of public pressure for a functional PDS,’’ he said, arguing against BPL targeting.

In the case of old-age pensions, there is a further argument against BPL targeting, which is that elderly people may be severely neglected in even relatively well-off households. The problem in identifying BPL households is compounded by the impossibility of ascertaining the distribution of resources within a family. For all these reasons, there is a strong case for universal pensions, along with a universal PDS — both are needed by the elderly, as well as by other vulnerable groups, he said.

On the financial burden, he said the financial requirements of universal old-age pensions, not to speak of a comprehensive social security system, are not inconsiderable. “However, in India’s rapidly growing economy, there are vast possibilities of expansion and improvement of the social security system in the relatively near future. What is important is to get the basic principles right, think big, and start without delay.’’ The Parishad has been demanding at least half of the legal minimum wage as universal pension for the aged.

On the other hand, Saxena told this newspaper a pension of Rs 2,000 a month for all was too much to ask, though a beginning could be made and money should be raised through taxes.

He said the rich should be taxed and income tax ceilings can be lowered to raise more funds for the purpose. However, he said, the pension amount should be raised gradually. At present, it was Rs 250 a month. “It can’t go abruptly to Rs 2,000,” he said. Again, people drawing pension under the Employees Pension Scheme, as well as those above the poverty line should be excluded from it.

A delegation of the Parishad including NAC member Aruna Roy, Baba Adhav, Dreze, Nikhil De, Annie Raja and some others received assurances from Finance Minister Pranab Mukherjee in a meeting that took place on Friday. They said he was sympathetic to the demand for a universal old-age pension and assured them the government would consult different parties and state governments to make it a reality, the Parishad said in a statement.

They also met the principal secretary to the Prime Minister, Pulok Chatterjee, and Planning Commission deputy chairman Montek Singh Ahluwalia.

The Parishad has projected a requirement of at least Rs 2 lakh crore to provide universal pension of at least half the minimum wage. They have asked for raising funds through a cess.