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Mukul G Asher & Deepa Vasudevan

Much more could be done yet, politicians willing

India is currently experiencing a demographic phase characterised by declining fertility rates and increasing life expectancy, thanks largely to improved nutrition and health services. As a result, the population is ageing rapidly. The number of persons aged 60 and above would have risen from 84.6 million in 2005 to 97.4 million by 2010, and about 335 million by 2050.

But, even as the greying population increases sharply, urban migration and changing social structures have reduced the old-age support traditionally provided by members of the extended family. The majority of India’s population will be urban in two to three decades, and social safety nets will be more essential and costly to provide.

The challenges of caring for a greying population are accentuated by the low coverage of current social security schemes. At present, at best a fifth of the population is covered by any such scheme. A much smaller proportion is covered in a way that will provide relatively comfortable retirement.

The International Labour Organisation has estimated that most of the 140 million jobs created in India between 2005 and 2020 will not be of the type where there is a formal employer-employee relationship. These workers need secure and well regulated avenues for retirement savings.

Potentially, the New Pension Scheme and the Pension Fund Regulatory and Development Authority (PFRDA) can provide this, but the political opposition by forces not wishing to truly empower the workers have held up the passage of the PFRDA Bill in the Parliament. The Budget’s silence on this matter suggests that at the earliest, necessary steps will not be taken until a new government is formed.

The Budget has, however, proposed some measures to address the needs of the greying population. The proposals, if implemented effectively, could result in a marginal improvement, but even this depends on better implementation of the proposed measures; and on professional governance of new institutions. The government’s record in both these areas is not reassuring.

The finance minister has proposed a plan outlay of Rs400 crore to start a National Programme for the Elderly in the current fiscal year. The details are not yet clear, however.

During the Eleventh Plan period, it is proposed to establish two National Institutes of Ageing, eight regional centres, and a department for geriatric medical care in one medical college or tertiary level hospital in each State.

If the current incompetence and the ruling rather than governing mindset of the ministry of health are not addressed, and if the new institutions are not provided the needed autonomy, they are unlikely to contribute much to addressing the problems of the greying population.

Budgetary support for the Indira Gandhi National Old Age Pension Scheme (IGNOAPS) has been enhanced to Rs3,443 crore, which represents a rise of almost 44% from 2007-08. The original Old Age Pension Scheme was expanded in November 2007 to include all persons over 65 years falling under the BPL category, which resulted in an increase in coverage from 87 lakh to 157 lakh beneficiaries. The higher allocation is primarily expected to provide for these additional beneficiaries.

Under the IGNOAPS, the Centre offers a monthly pension of Rs200 to each eligible beneficiary. State governments are expected to match this amount, and ensure that the pension reaches the beneficiaries. Thus, efficient functioning of this scheme depends on timely release of pensions, clear demarcation of responsibilities and accountability among the various levels of government involved in its implementation, and active efforts to generate awareness about the scheme.

Typically, the Budget speech does not mention the number of states that have adopted IGNOAPS, nor does it indicate the progress of implementation since the widening of its scope last year.

The budget proposal to put in place a Central Plan Schemes Monitoring System, along with a decision support and management information system, is designed to permit better monitoring of schemes in the future. However, it raises questions about why so many schemes were set up (and so many have been expanded in this Budget) before establishing such elementary assessment mechanisms to ensure effective use of public resources.

A road map is needed to integrate the IGNOAPS into the overall pension system, rather than restrict it to persons below the poverty line. Scheme design and eligibility norms may need to be reviewed to ensure that it continues to provide financial support to all the poor elderly in the medium term.

The tax proposals in the Budget were positive for senior citizens, but inequitable and inefficient for the economy. The threshold limit for exemption from income tax was raised to Rs2,25,000 and tax benefit under Section 80 C were extended to the Senior Citizens Savings Scheme.

Exemption by gender or age introduces unnecessary complexity and inequity in the income tax. Ability to pay should be the only criterion.

The most significant component of the direct tax proposals was the clarification on reverse mortgages. The Budget proposed to amend the Income Tax Act to the effect that a reverse mortgage would not amount to a capital transfer and hence not liable for capital gains tax, and further, that the revenue streams available under a reverse mortgage scheme would not considered as income for tax purposes. This clarification is expected to increase the demand for reverse mortgages, which can be used by house-owners for increasing their financial inflows in old age.

All citizens of India, not just the elderly, benefit from a budget that motivates sustainable growth, moderate inflation and prudent fiscal management. On these counts, the 2008-09 Budget hugely disappoints. Without high real growth, accompanied by commensurate employment generation and moderate inflation, economic security can not be secured for either the young or the old.

This budget has cemented the UPA government’s notoriety for believing only in politically motivated outlays, and not in outcomes that help address India’s 21st century challenges.

Mukul Asher is professor of public policy, National University of Singapore (sppasher@nus.edu.sg). Deepa Vasudevan is a freelance researcher (deepavasu@hotmail.com).