The prime minister launched three welfare-enhancing pension and insurance schemes on May 9. In a country where less than 10 per cent of the population has insurance cover and almost nobody in the unorganised sector has a pension plan, these three schemes are expected to play a significant role in providing social security for the poor.
Having successfully ensured, through the Jan Dhan Yojana, that more than 95 per cent of Indian households have bank accounts, the Central government has taken the next logical step by extending social security to the masses. This move comes close on the heels of the launch of Mudra Bank, mandated to ensure that adequate credit flows to micro units. The extension of these products will ensure business volumes for the banking industry, which will carry new instruments to the masses, and help in making financial inclusion commercially viable. The structure of the schemes entails contribution, though nominal, by individual subscribers.
The flagship Atal Pension Yojana (APY) will provide old-age income security for the working poor in the unorganised sector, while addressing longevity risks among the workers, who constitute nearly 88 per cent of the total labour force of 47 crore. Most of these workers do not have formal pension plans, despite the fact that the Swavalamban Scheme had been operational for half a decade. Depending on the contribution, the APY would provide a fixed monthly pension of Rs 1,000, 2,000, 3,000, 4,000 or 5,000 from the age of 60. The minimum age to join the APY is 18 years, the maximum, 40. The monthly contribution, to be paid through a bank account, will range from Rs 42 to Rs 1,454, depending on the age of the applicant and the pension amount opted for. In the initial five years, the government will co-contribute 50 per cent of the amount put in by the subscriber or Rs 1,000 per annum, whichever is less.
The prime minister has also announced the Jeevan Jyoti insurance scheme, which will provide a one-year insurance cover for death, renewable annually. Again, the scheme envisages that the subscriber will have a savings bank account. The eligibility age is 18 to 50 years. The premium is Rs 330 per member and the cover is Rs 2 lakh, payable on death. The scheme will be administered through life insurance companies in arrangement with banks. The third scheme is the Suraksha Bima Yojana, renewable annually, which will insure individuals against death or disability because of an accident. All savings account holders between the ages of 18 and 70 are eligible to join. The premium will be Rs 12 per annum, which will be shared between insurance company, agent and bank.
These three schemes will ensure financial inclusion, enhanced business opportunities for banks and higher insurance penetration, providing economic security to people in the unorganised sector. Economic security will also ensure stability in consumption patterns and the ability to weather income shocks, which will ensure a steadier path of growth for the economy.
The government may like to index the monthly pension amount in the APY to inflation, as Rs 5,000 per month 42 years later may be too insignificant an incentive to join. Some upward adjustments in the premium and pension could be needed soon. There would also be a need to ensure that commercial banks, especially in the public sector, already burdened by the Jan Dhan Yojana, are adequately equipped to deliver these additional services.
While these commendable measures will certainly enhance welfare, an important yet overlooked issue is the plight of the nearly eight crore Indians, mainly women, above 60 years of age, who are not subscribers or beneficiaries of any pension scheme. The government should consider a system of universal pensions till 2035, when the first monthly pension would be paid under APY, for those elderly persons who devoted a lifetime of hard work to the country but did not have the option to subscribe to a contributory pension system. This would make India a genuine welfare state.
The writer is RBI chair professor of economics at IIM Bangalore. Views are personal
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