Don146;t punish reformers

The Central Provident Fund Commissioner, Ajai Singh, has been sacked by the government for proposing radical reforms to the Employees Provident Fund Organisation. It isn8217;t surprising that the Labour ministry is upset with an officer who publicly disclosed information about the subsidies involved in paying higher interest rates to EPF. Details of information about member balances made it possible for the public to see that it was the rich who were benefitting disproportionately from the interest subsidy. Consequently, the Labour ministry did not succeed in getting interest rates raised.

What is surprising is that such a sacking has been done under Manmohan Singh8217;s stewardship. His emphasis on reform, better governance and the human face sound hollow when an honest officer who was trying to implement improvements in the problem-ridden old age security system, proposed bold reforms. People involved in implementing government schemes are often in the best position to understand why schemes cannot work. They should be rewarded and not punished when they 8216;step out of line8217; and propose structural changes. The 8216;bold reforms8217; suggested by him may have been too bold for the Labour ministry but make perfect sense: that the EPF rate determination should not be a political process but a mere mathematical exercise based on the interest earned; and that the Labour ministry is ill-equipped to be the caretaker of the pension and provident fund system. This hardly seems out of line in the broader context that India is slated to have a new pension system regulated by the Pension Fund Regulatory and Development Authority, which will not be under the Labour ministry.

This episode serves to highlight the gaps in India8217;s old-age security system. Even if the EPFO works perfectly, it only covers 4 crore people in a population of a 100 crore. The rest of the population has no old age security system. At present the old constitute 7 per cent of the population and the joint family system has not broken down completely. But 40 years later, changing demographics would mean a very different situation. The ratio of the elderly to the tax-paying working population will be so large that to implement schemes like the present pension system the government will have to tax away half or more of the income of the working population. The present system must change. The government will do well to speed up pension reforms and to reward, not punish, those who attempt to do so.