FE Editorial : Sign up for safety net

Written by The Financial Express | Updated: Aug 27 2009, 02:33am hrs
The move to extend the New Pension Scheme (NPS) to approximately 400 million workers in the unorganised sector through a low-cost plan, aimed at relaxing the current annual contribution threshold of Rs 6,000, is a significant step. It can potentially form the core of a social security scheme for millions who remain outside its fold or cannot currently afford it. The innovative plan requires self-help groups and non-government organisations to open the main account with the NPS, choose the investment option and pay fund management and other fees that still remain too expensive for individual workers. These workers will hold sub-accounts. If it works out, this plan will boost the prospects of the NPS that has been now languishing without much public interestjust 1,800 subscribers have signed up after it was thrown open to all citizens in May. Though the effort being made by the PFRDA to include the Indian Postal Services to supplement the efforts of public and private sector banks in selling the scheme is laudable, one needs to be cautious about expecting any sharp increase in the popularity of the scheme as distributors are unlikely to sell it aggressively to the public in the absence of any substantial financial incentives.

One has only to look at the progress of the Public Provident Fund scheme, another voluntary social security scheme that was floated decades ago in 1968. Most recent numbers show that the Public Provident Fund scheme, which currently allows individuals to invest between Rs 500 and Rs 70,000 in a fiscal year, had covered only 0.8% of the labour force by the turn of the decade. Even the Employees Provident Fund, which has the maximum coverage, barely touches 6% of the workforce. This gives some indication of the challenges that distribution agencies face in motivating the huge unorganised sector workforce into the NPS. Other improvements like the introduction of the NPS with withdrawable accounts at the beginning of the next year will also further improve its attractiveness. But such minor innovations alone cannot provide the critical mass required to push the programme onto a faster track. This can take place only if the regulator and social welfare arms of central and state governments act in tandem and try to incorporate the message in other large government programmes like the NREG to improve awareness. The regulator would also have to ally with employers and workers organisations and start a concerted drive to push up enrolment rates.