New pension system not inclusive

No safety net for unorganised workers. — P. V. Sivakumar

The New Pension System and other social security schemes have done little other than create a fund for markets to play around with.

When the new pension Bill was passed by the Lok Sabha on September 4, 2013, the media reported that it would address the old age pension requirements of unorganised or informal sector workers.

However, the Pension Fund Regulatory and Development Authority Act, 2013 (PFRDA) provides only for the creation of a New Pension System (NPS), but allows for different schemes for different segments of the population.


Its main focus is the central and state government employees for whom the NPS has been made mandatory from April 2004. For the unorganised sector workers, a scheme called Swalamban has been in operation for the last three years. Like other schemes, it is based on defined contribution but undefined benefits. It is voluntary, but will attract a small incentive of Rs.1000 per year from the government for those who invest between Rs.1000 and Rs.12,000 per year.

If the unorganised sector workers consisting of more than 75 per cent poor and vulnerable (i.e. not more than two PPP dollars per day per capita income) are looking for a guaranteed income, then it would be better for them to invest the money in a Public Provident Fund because the performance of the Swalamban has been reported to be poor in comparison.

This led the Parliamentary Standing Committee that examined the Bill to conclude in its report that “the performance of the Fund Managers appointed by the PFRDA to implement the scheme has been uneven over the last three years or so and the returns generated by them show a downward trend, particularly with regard to the unorganised sector, where the returns have been abysmal. The Committee are extremely concerned to note the negative returns in some of the schemes involving all fund managers” (page 25).

No wonder the enrolment under the Swalamban since its inception has been a mere 11 lakh i.e. 0.03 per cent of an estimated 392 million unorganised sector workers. Even the NPS for the corporate sector has hardly attracted any attention. The NPS with a current corpus of nearly Rs. 10,000 crore are the contributions of central and state governments and their employees --- placed at the disposal of private corporate capital through the debt and equity markets.

Targeting introduced

However, there is another national legislation, the Unorganised Workers Social Security Act, 2008 that is explicitly meant to provide some social security for the workers in the unorganised sector. This is an outcome of the election promise made by the UPA in 2004. The National Commission for Enterprises in the Unorganised Sector (NCEUS), known as the Arjun Sengupta Commission, was constituted to recommend a set of social security measures. The Commission found that not only 84 per cent of the total workers are in the unorganised or informal sector but another 8 per cent are in the formal sector as informal workers. As such 92 per cent of Indian workers are insecure, a figure that has refused to change even before or after the new economic reforms.

The NCEUS argued for a system of National Minimum Social Security (NMSS) consisting of (a) health cover to the worker and family to take care of sickness, (b) accident or death of the worker, (c) old age pension for the poor workers and provident fund for the others. The NMSS was part of a larger architecture of creating a ‘national social floor’ consisting of (a) the NMSS, (b) a national minimum wage below which no regional or trade-specific minimum wage should be permitted, and (c) legislation for minimum conditions of work. Both equity and efficiency considerations were at the core of the rationale for this national social floor.The legislation that was brought out ignored the idea of a national social floor. It chose to focus only on some elements of the NMSS. Under the Social Security Act, 2008, a scheme for covering health care requirements known as the Rashtriya Swastha Bhima Yojana (RSBY) was introduced. Another scheme called the Aam Aadmi Bima Yojana (AABY) for life insurance was also launched. None of these were mentioned in the Act but were included in a schedule in which eight other existing but small targeted schemes were included..

The important point to note here is that while the recommendation of the NCEUS was to cover all unorganised sector workers, which was endorsed by a Parliamentary Standing Committee, the government chose to be selective even in schemes it wished to introduce. Thus RSBY was meant for BPL households and not for persons who are identified as unorganised sector workers. Later, selected groups of unorganised workers were added through the annual budget speeches. Similarly, life insurance was not for unorganised sector workers but for only landless rural households. The fact that these two groups overlap considerably, if not wholly, with unorganised sector workers does not justify the refusal to recognise their contribution to the economy as workers.

The NCEUS recommendations included the need for an empowered national social security board and state-level boards, a dedicated national fund and use of fiscal instruments to mobilise resources, since a significant proportion of unorganised sector workers were ‘self-employed’ or casual workers floating around from place to place and/or employer to employer. None of these were accepted, but a national board was proposed in the act with powers to recommend and advise.


There could be many who might argue that ‘something’ is better than ‘nothing’ and one should view these steps as incremental in our long to social security for the working poor. The RSBY coverage currently stands at 36 million. The coverage under the insurance scheme for the landless rural households is around 48.11 million.

But field level studies on implementation reveal a mixed bag. A few states emerge as comparatively reasonable performers while many suffer from poor implementation with considerable moral hazard problems. In one of the Village Panchayats in Odisha the Sarpanch refused to distribute the RSBY cards saying he has no economic incentive in doing this additional job.

In many states, empanelled hospitals often overcharged the RSBY card holders especially the poor and less educated; in some other cases persons who required only outpatient treatment were converted into inpatients so as to charge them under the RSBY. Most state governments have shown a distinct preference for private sector insurers, mostly new entrants, as against the long established public sector insurance companies. As for empanelled hospitals of around 10,700 (as of 2012), only 30 per cent were in the government sector.

In the case of AABY scheme, the current coverage is 48.11 million. This should be read against the eligibility criteria for the scheme. A governmental portal on the scheme says that the eligibility is: “People from rural landless households who are aged between 18 and 59 years against natural as well as accidental death and against partial or permanent disability. BPL families also (emphasis added) come under the eligibility criteria”. Therefore, it is not a scheme for unorganised sector workers nor the officially recognised poor (BPL) but for rural landless that could include those outside of these two groups. If this is a step towards universalisation of at least one element of social security, then it deserves to be welcomed and applauded! What about benefits? Statistics on claims settled show a five-year cumulative figure of 130,160 or nearly 0.03 per cent of the total number of policy holders.

There is no doubt that the NPS has enhanced business opportunities for private financial institutions. The same logic seems to have been at work even in the limited initiatives in providing social security for the working poor in the unorganised sector. It seems to have also widened opportunities for rent-seeking for the decision-making political and bureaucratic class.

The author was a member of the erstwhile National Commission for Enterprises in the Unorganised Sector.

Published on October 20, 2013
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