The domestic capital markets may get developed on the liquidity and depth fronts in sync with international standards by moulding a foundation taken from any western nation to Indian requirements, the report said.

For a more realistic management of pension funds, the ``contracting out'' approach to the private sector will be an ideal choice, the report said.

Employers and employees should be at liberty to choose initially and change their fund managers on the basis of the internal guidelines. This would see the markets find their equilibrium without any government dictat, the report said.

These funds, on their part, should have comprehensive disclosure obligations and operate undertight regulation and supervision.

Considering the fact that the overall net accretion into pension funds stood at approximately Rs 20,000 crore, releasing 10 per cent of the amount could lead to a flow of Rs 2,000 crore into the infrastructure sector. Further, there could be an initial resistance from the funds themselves to consider investing in a currently non-productive sector, especially the private sector.

This could be compounded by the fact that the these long duration projects could only yield marginally higher returns than other traditional bonds of public sector undertakings or developmental finance institutions, it added.

There are some compelling needs for pension funds: to bring the flow of institutional savings to world standards, to give a fillip to the resource-starved infrastructure sector, to enhance the only true savings vehicle for financial security and to broadbase the investor segments accessing this facility, the report said.

In India, both the employees and employers aregoverned by the Employees Provident Funds and Miscellaneous Provisions Act 1952. This only governs 19.3 million people in 2,65,000 establishments, compared with approximately 300 million people who are estimated to be employed.

The net accretion for pension funds stood at Rs 17,900 crore and the corpus was at Rs 1,28,000 crore for fiscal 1995-96.

This portrays a dismal 1.6 per cent and 11.7 per cent of the GDP respectively, the report said. Not only is this much lower than similar figures in other emerging countries, it is expected that anything lower than 30 per cent of GDP savings cannot show a sustained growth of 7 per cent.

According to the report, the only relevant view that can be taken in the pension fund business is long term. Any short-term measures will be counter-productive. India is at a financial crossroads in its endeavour to provide retirement benefits to an increasingly large and growing number of citizens.