Interim budget’s pension scheme is a big hoax; Modi govt is paving for organised loot

In his Interim Budget presented on 1 February 2019, the stopgap Finance Minister Mr. Piyush Goyal announced a scheme for a monthly pension of ₹3000 for unorganised workers whose numbers he put at 42 crores. The workers in the age-group of 18 to 55 years would get this pension upon attaining the age of 60 after paying a monthly premium depending upon the duration for which they pay.

For instance, a worker who starts paying at the age of 29 would pay ₹100 per month for 31 years and a worker who starts paying at the age of 18 would pay ₹55 and after 42 years he/she would get ₹3000 per month.

The government would make a matching contribution. Workers who are left with lesser years of service before reaching the age of 60 would pay correspondingly more premium but the minister did not clarify the rates for those who are older, say between 30 to 55 years. No worker would get pension now and first pension would flow to workers only in 2024 when the oldest category 55 years reach 60.

Critics of the government limited themselves to calling it a pre-poll sop or lollipop. Nikhil Dey of Pension Parishad, a pioneering campaign for the pension rights, demanded that a pension of ₹3000 should be given to all unorganised workers without collecting any premium as their conditions are precarious. However, a closer scrutiny of Piyush Goyal’s pension math reveals that the government is out to loot the unorganised workers of their hard-earned money in the name of pension.

Let us now go into the details of the pension math. Consider the case of an unorganised worker who starts paying a premium of ₹100 at the age of 29. She/he would be paying this premium for 31 years.

The government would also be paying its share of ₹100 every month for this duration. Instead of going into the pension fund, let us assume that this premium money is invested in recurring deposit in banks. Several banks give interest on recurring deposit at 8% and Deutsche Bank gives a rate of 8.75%. Let us go by the most attractive option for the worker.

If the worker invests ₹200 (₹100 her own money and ₹100 matching amounts given by the government) in recurring deposit for 31 years, it would lead to a maturity fund of ₹3,84,572 when the worker reaches the age of 60. If the worker invests this money either in corporate deposit or fixed deposit in a bank how much interest she would get?

A corporate house like the RP Goenka Group or a private bank like Lakshmi Vilas Bank offers 10.5% interest per annum on fixed deposit. At this rate, the worker would get an interest of ₹40,380 per year on ₹3,84,572 and this would work out to ₹3365 per month. But under the proposed government scheme the worker would get only ₹3000 per month! The workers would lose ₹365 per month and this money robbed from the worker would go to government’s kitty.

The young workers who start paying premium at the age of 18 would be robbed more. They have to pay ₹55 per month for 42 years and the government would also pay matching amount. If we work out a recurring deposit of ₹110 (₹55 from workers plus a matching amount from the government) for 42 years, the total corpus when the workers reaches the age of 60 comes to ₹5,76,315. The annual fixed-deposit interest on this at 10.5% would be ₹60,513 and per month this works out to ₹5042. In other words, the poor unorganised worker would be paid only ₹3000 out of this and be robbed of ₹2042 per month! Some social security this!

Assuming 10 crore workers are brought under this scheme, the total money looted from the workers would run into ₹20,420 crore per month or ₹2,45,040 crore per year! ₹3000 per month per workers after 42 years might be peanuts but this huge amount looted collectively from 10 crore workers would not be insignificant.

Not only this. The worker would only get a monthly pension for lifetime and at death the government would not pay the corpus to the next of kin but grab it for itself. So the government would loot ₹3.8 lakh to ₹5.76 lakh from every unorganised worker.

The government has also put a ceiling and only those unorganised workers earning less than ₹15,000 would be covered. Pinarayi Vijayan, the CM of Kerala, announced a labour policy of ₹600 minimum wage per day, or ₹18,000 per month, for unorganised workers in Kerala on 14 July 2017. So crores of unorganised workers in Kerala would be excluded from the “national” pension scheme!

Additionally, though Piyush Goyal declared that the scheme is targeted at 42 crore unorganised workers including agricultural labourers, in the same budget speech he said that the scheme would cover only 10 crore workers but to pay government premium he had allocated only ₹500 crore which means only 5 crore workers would be covered. Considering the extent of loot as described above, this could well turn out to be a blessing in disguise!

Unfortunately, no law in India stipulates minimum pension similar to minimum wage. ₹3000 per month as pension in 2050 would be a joke. For ₹3000, the worker can buy 100 kgs of rice today at ₹30 per kg. Assuming 5% annual inflation after 30 years, the price of 1 kg of rice would be ₹129.6, and the same worker would be able to by only 23 kgs of rice in 2050. The purchasing power of ₹3000 after 30 years would be around ₹750 assuming 5% annual inflation.

Any pension should enable workers to spend their last years in happiness with old-age security after a lifetime of toil. The society owes it to them. But this government only creates greater insecurity by robbing their money and throwing only pittance at them. ₹3000 would work out to a paltry ₹17 today. After 30 years, with ₹17 one cannot buy even a lollipop! So, whether this would serve as a “pre-election lollipop” to Modi is anybody’s guess!