The government?s plan to reform and expand India’s pension system by linking it to the market has received a setback. On Thursday, several members of a parliamentary standing committee vetting the relevant Bill, including those from the Congress, flayed the government for not providing for minimum guaranteed return as an option under the pension schemes.
If such a proposal is accepted, the much-touted pension reforms would go for a toss. The idea behind the reform was to move from a system of guaranteed payouts (defined benefits) to one of defined contribution.
Sources privy to the committee’s discussions told FE that members were also critical of the Bill’s silence on the level of FDI to be allowed in the pension sector. Earlier, there was a proposal to allow foreign funds to buy stakes of up to 26% in pension joint ventures with Indian firms, but this proposal failed to find its way to the Bill. Apparently, the government wants to keep the issue of FDI outside the ambit of pension legislation so that executive decisions could be taken on this at the appropriate time.
The standing committee on finance met here Thursday to initiate the process of clearing the Pension Fund Regulatory and Development Authority Bill.
Members pointed out that even while introducing a market-determined pension system, guaranteed returns should be kept as an option for the vulnerable sections. They commented that clause 14(2) (e) of the Bill does not specify a minimum guarantee, which they said, is important. PFRDA chairman Yogesh Agarwal is learnt to have commented that changes would be made to the clause and that ?it would be suitably worded.? Members, however, were not happy with this.
The committee also wanted to know the FDI cap to be prescribed in the case of pension funds.
The Bill, as proposed by the finance ministry, is silent on this aspect as well. According to a source, secretary (economic affairs) R Gopalan said the cap would be ?commensurate with Fema regulations?, but also asked for time to clarify.
Members also demanded that members of the PFRDA board be professionals in the fields of economics, law and finance. Agarwal assured members that they would be hiring professionals but ?there could be no guarantee of their professional acumen.?
The issue of ?hassle-free portability?of pension accounts from one place of employment to another was also discussed. On this, finance ministry officials said they would need ?some time to get back.?
?If the answers come to us, then there is a possibility that the Bill will be cleared in a fortnight,? said a source in the committee. The next meeting will held next Friday. The PFRDA and insurance Bills are two of the key pending financial sector reforms. Sources said that the PFRDA Bill, in fact, could be introduced in the monsoon session itself if all went well.
Finance minister Pranab Mukherjee had reached out to standing committee chairman Yashwant Sinha in April to start the clearing of these Bills. In fact, it was the BJP in March this year which bailed the government out in introducing the Bill in the first place. Because of lack of numbers on the Treasury side, the Bill could have dropped like a stone in the Lok Sabha and being a money Bill, would have prompted the fall of the government. The Bill proposes to give statutory powers to the interim pension regulator PFRDA to form rules regarding pension funds. Right now, the PFRDA only makes rules regarding the New Pension System.