Budget 2019: is PMSYM a repackaged APY?

Abstract

Budget 2019: In the run up to the Interim Budget, most analysts predicted the government will follow the fiscal populism route to boost its electoral fortunes, ahead of the General Elections. True to expectations, the Budget announced steps to woo distressed farmers and the middle class—the two key aggrieved electoral constituencies—as indicated by the results of the recent state elections.

With an outlay of Rs 75,000 crore on the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme, which promises to provide direct income support of Rs 6,000 per year to 12 crore small and marginal farmers; an additional outlay of Rs 5,000 crore in MGNREGA, which could potentially create more secondary employment opportunities for distressed agricultural labourers; and announcement of tax benefits of Rs 18,500 crore to 3 crore middle class taxpayers via income tax exemption to individuals with taxable annual income up to Rs 5 lakh, the Budget attempts to address the concerns of some of its key constituencies. In that sense, the Budget has been a politically-expedient one. While speculations centred around pronouncements for the distressed farming class and disillusioned middle class, the government appears to have extended the optics to a much wider constituency—the 42-crore-strong unorganised sector workers. The Budget introduced a mega co-contributory pension scheme for unorganised sector workers (monthly income up to Rs 15,000), called the Pradhan Mantri Shram-Yogi Maandhan (PMSYM), combining elements of defined benefit and defined contribution methods. It promises to provide assured pension of Rs 3,000 per month from the age of 60 years, in lieu of a monthly contribution of a nominal sum during the working age. The FM proclaimed PMSYM will cover 10 crore workers in the unorganised sector in the first five years, making it one of the largest pension schemes in the world. The announcement, however, raises a few doubts.

First, is it a new scheme or a rehashed version of the Atal Pension Yojana (APY), launched in 2015? Similar to PMSYM, APY targets the unorganised sector, is co-contributory in nature, and promises a minimum pension between Rs 1,000-5,000. While the full details and fine prints of PMSYM are yet to be spelled out, given that it bears the same overarching features and benefits as APY, can we infer that APY has been merely rechristened to project it as a ‘new’ initiative by the government in this year’s Budget? If this is the case, by being opaque about it, the government has effectively used the Budget speech as a tool for political marketing only.

Second, with a similar target group, similar design, almost similar scheme of contributions and benefits as APY, on what basis the government estimates to cover 2 crore workers in a year? The five-year projections on coverage are suspect, given that, as of December 2018 (i.e. almost about three years since its launch), APY had only about 1.34 crore subscribers—the coverage representing a mere 3.2% of the total unorganised sector workforce.

APY has not been attractive for unorganised sector—one, due to its contributory nature; two, inflation-adjusted future benefits are too small to meaningfully serve any purpose in the old age. The proposed scheme has limited the options for a worker to choose the level of benefits as is currently possible under APY—by fixing it at Rs 3,000 per month. This will make the proposed scheme even more unattractive to the unorganised sector.

It is, therefore, important that numbers are projected more realistically. As the proposed scheme changes nothing in terms of design or real benefits, renaming and repackaging may be a good political marketing strategy in an election year, but in reality it will not serve a vast majority of the unorganised class, unless the underlying issues around design, adequacy, efficiency, equity and targeting are addressed. At a time when the government has taken commendable steps to streamline redundant and outdated laws, there is no justification to allocate scarce financial and regulatory resources on duplicate schemes for the same target group.

There can be little disagreement on the premise that workers in the unorganised sector, who constitute 90% of the country’s workforce, and among whom a substantial proportion belong to the economically weaker sections (EWS), need concrete public policy initiatives that secure their well-being, particularly in the old age. To the credit of the government, there has been an attempt to adopt a holistic approach in working out a comprehensive social security coverage for the unorganised sector—through a jobs quota for the EWS, through Ayushman Bharat (health protection), through Jeevan Jyoti Bima (life insurance), through Pradhan Mantri Suraksha Bima (accident insurance), and now through PMSYM (old-age pension).

While the approach is commendable, poor implementation, lack of regulatory capacity and oversight, poor financial literacy, low awareness of provisions and rights among potential beneficiaries, and abysmally low real benefits could render such schemes meaningless. If good intent is not backed up with effecting tangible and meaningful benefits to the large unorganised class, no amount of political marketing will cut ice with the electorate.