As Indians age fast, get ready for more pensioners, more tax burden

This presentation cost the Central PF chief his job

It’s a simple graphic that makes a powerful point.

Compare the way our population spreads across different age groups now with what the situation will be 50 years down the road and it hits you: India is ageing fast.

While we have a large working population supporting a small number of retirees now, some years later, as people live longer, the percentage of retirees will shoot up. They will draw pensions. They will need to be looked after. All this will be done by a smaller base of tax-payers.

The graphics were presented before the Planning Commission last month.

The presenter then declared starkly: ‘‘Financial nightmare. No modern Government can afford to have a large population of elderly destitutes.’’

This was no slick salesman with a vested interest speaking but the normally conservative Employees Provident Fund Office (EPFO), which will have to shell out the pensions and knows the enormity of the task it faces.

The presentation cost Central Provident Fund Commissioner Ajai Singh his job as the Labour Ministry was unhappy with his assessment and recommendations. While a single bureaucrat’s transfer may not mean much, the issues raised by EPFO cannot be ignored.

The Indian Express has managed to obtain a copy of the presentation and it is a sobering read. As reported by this newspaper, the Employees’ Pension Scheme, which promises Defined Benefits to employees after retirement as long as they or their widows live, is unsustainable in its current form.

Already, it faces a projected shortfall of Rs 17,500 crore. Though the EPFO did not directly suggest scrapping this scheme (in more general terms, it recommended ‘‘legislation to address changed external environment’’), it gave a sense of what else needed to be addressed urgently.

An audit that the EPFO had conducted in 2001, which it shared with the Planning Commission, showed how dismal the situation was:

59 per cent—or 1.83 lakh—establishments were not complying, when it came to pension and provident fund payments

84.89 lakh members were not contributing

Only 26 per cent of the claims were being settled in the promised 30 days

A massive drive saw 1.15 lakh establishments being made to comply while the recovery of dues and arrears improved by 834 per cent in five years.

But it was an uphill task. Even though the EPFO said it was in battle mode and had launched a project called Reinventing EPF India to improve accounting and compliance and to make sure every claim was settled just two or three days after it was made, it listed out the hurdles.

The project was running 22 months behind schedule. Approvals were being delayed. The Labour Ministry did not even appreciate the significance of the project.

‘‘The greatest risk (is that) reinventing EPF India has no champion,’’ the presentation concluded in anguish, even as it asked for the project to be overseen by Planning Commission or the PMO.

Instead, the Central Provident Fund Commissioner was shown the door while there has been no talk of addressing the crisis looming before EPFO and India itself.

Ila Patnaik