The Hindu Business Line : Tapping unorganised sector for micro-investments

An ordinary investment counsellor may want to discount them, declaring in no uncertain terms that they would not fit into his scheme of things. But he may well be advised not to do so just yet - for they bring with them a great deal of promise and optimism.

We are, of course, referring to the workers in the unorganised sector, people toiling hard to earn their daily bread with a little or no pension awaiting them when they retire.

Construction workers, artisans, milkmen, plumbers... people who cater to the more privileged among us would perhaps need to take care of their post-retirement days more than anyone else.

The fact that there is no organised, large-scale pension program in India to ensure this, is not a very happy thought. It poses a huge problem for policymakers, especially those who have to think about the economic advancement of the underprivileged.

We are raising this issue to give you a brief idea - not that you did not know it altogether - of what happens beyond our familiar world, made up as it is by investment strategies, asset allocation, profit-taking and the like.

Also, we are specifically talking about a proposal worked out by UTI Mutual Fund to tie-up with organisations formed by various sections of the so-called `informal sector'.

Micro-investments

To put it briefly, the proposal relates to putting in regular, micro investments in a scheme designated by the fund house, done with a view to secure income after the members attain a certain age.

That scheme, positioned in the pension funds space, provides the fund manager the scope to invest up to 40 per cent of the assets in equities. At the moment, equity exposure is about half of this. And, to use a cliché, the possibilities are endless.

Those who can join at an early age can stay enrolled in the programme till they reach the critical stage of their lives.

Now, we have heard investment planners talk in terms of mapping retirement goals. They all want us to think beyond typical, old-fashioned notions of financial planning and retirement. But even such typical ideas can often become a luxury, compared to the realities that underprivileged workers have to face after they retire.

According to an estimate, the pension burden on the Central Government was a huge Rs 28,000 crore in 2004-05, up from Rs 5,300-crore or so in 1993-94. For the States, the pension bill is bigger - roughly Rs 39,000 crore in 2004-05. Clearly, this makes the authorities very uncomfortable - they are in no position to meet the rising costs year after year.

Pension reforms

At this juncture, allow us to give you an idea of the pension reforms that have taken place. In January 2004, the Indian government started a system based on defined contribution for employees.

Now, more than 2 lakh government employees are under the new regimen. Well over a dozen State Governments have notified the system as well and more are expected to troop in.

In contrast, the informal sector accounts for as much as 85-87 per cent of the country's total workforce. And they have practically no pension to speak of.

At the other end of the spectrum are those covered by EPFO and other PFs.

In all, they constitute about 10 per cent of all workers.

Feedback may be sent to nilanjan@thehindu.co.in

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