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Back To The Drawing Board

Basing the NPS on a government guarantee means that the only way of solving the original problem has now been ruled out…

The other day, there was this news item about the New Pension System that reminded me of a tale from the Panchatantra. The news item was about the recommendations that the Parliamentary Standing Committee on finance had made about the pension bill and here’s the story that it reminded me of.

A small female mouse was going about its timid way when an eagle scooped it up in its claws. However, as the eagle flew along, it accidentally dropped the mouse into the hands of a sadhu. The holy man had no children so it turned the mouse into a girl and brought it up as his daughter. The years went by and the girl grew up to be a great beauty. When she became of marriageable age, the sadhu decided that it wanted a powerful son-in-law. His first choice was obviously the sun, whose light powers the whole world. However, the girl was not enthusiastic about the match. She said that the sun was too hot. So the sadhu asked the sun if anyone else was as powerful as him. The sun pointed to clouds since the clouds could cover and dim the sun’s glory. However, the girl said that the cloud was dark and cold. The sadhu then asked the cloud if there was anyone better than him. The cloud said that the wind could blow him away whenever it wanted to. But the wind wasn’t quite the mate that the girl was looking for. She said that the wind was too fidgety.

The doting father, not having access to matrimonial websites, asked the wind to suggest a better match. The wind pointed to the mountain, who could stop the wind in his way. However, the girl thought the mountain too rough. Now, it was the turn of the mountain to make a suggestion. The mountain though about it and said that it had to be the mouse, because the mouse could bore a hole through the mountain. This, the girl liked. The mouse was willing too, and the sadhu heaved a sigh of relief. He then fulfilled his filial duty by turning the girl back into her original form and marrying her off to her chosen husband. And so eventually, the mouse girl became a mouse because that’s was she was best suited to.

Meanwhile, the parliament’s standing committee on finance has recommended that the New Pension System be converted to a guaranteed returns system in which the government should guarantee a return that should be at least equal to the EPFO returns. I guess it doesn’t matter that we’ve just had about a decade’s worth of activity focused on the fact that the Government cannot continue funding pensions. That India must switch to a defined contribution system and that this would incidentally also solve the problem of the unorganised sector’s retirement benefits. The whole point of the pension reforms was that even though the government couldn’t guarantee a pension, a long-term, market-linked system could provide enough safety with superior returns. In any meaningful way, the recommendation that the new system must be based on a government guarantee means that it’s back to the drawing board, with the additional problem that the only way of solving the original problem has now been ruled out. Now we’ve all recently heard a great deal about how a parliamentary democracy should function and how the will of the people is best expressed through the elected representatives, so I guess that’s that. The people have spoken. Whatever happened over the last decade was basically the sun and the wind and the mountains and so on. Eventually, the grand new retirement benefit system has turned into the mouse that it was destined to be; and will presumably live happily ever after in the EPFO’s company and the government will shell out whatever is needed to fill any gap.