Standardized savings System in India: Policy Making Processes and the Policymakers

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´╗┐Standardized savings System in India: Policy Making Processes and the Policymakers Mukul Asher Professor, Lee Kuan Yew School of Public Policy National University of Singapore Presented at International Conference on Research, Public Policy and Asian Public Policy Schools 14-15 March 2005, Bandung

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Organization Introduction India's Social Security System: An Overview Policy Framework and Processes Reforms and Prospects

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Introduction/1 This presentation breaks down policymaking procedures and policymakers in India which have prompted to the advancement of the flow government managed savings framework It additionally depicts how late years saw start of changes in this segment and prospects for further change

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Introduction/2 There are signs that late activities have gotten under way a procedure whose progression will be resolved, as it were, by confirmation based approach forms, which likewise depend more on foundations and less on individual policymakers

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India's Social Security System Public Sector Occupational Voluntary Tax - EPFO Civil Service Schemes for Enterprises Pension Advantaged Schemes Unorganized Sector (Usually DB Schemes ( generally Schemes) DB however noteworthy move to DC) DB DC solidarity - EDLI EPF EPS State Government Central Government Local Bodies National Assistance Schemes NGOs, Family, and Comm State Assistance Schemes Group Insurance Welfare Bodies Pension results of Life Insurance Companies DB - DB - Small sparing s plans - NCPS DC NCPS DC NCPS - GPF GS India's Social Security System: An Overview/1

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India's Social Security System: An Overview/2 Abbreviations Used DB Defined Benefit DC Defined Contribution EDLI Employees' Deposit Linked Insurance Scheme EPF Employees' Provident Fund EPS Employees' Pension Scheme GPF Government Provident Fund GS Gratuity Scheme NCPS New Civil administration Pension Scheme NGO Non-Government Organizations

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Policy Framework and Processes/1 I. How Was it Set? Post Independence, India received equitable nation and communist example of economy and society. This was the basic work on amid the late 1950s Social security went under the class of work welfare. Media additionally secured government managed savings issues from the thin point of view of advantages to those utilized in the formal segment

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Policy Framework and Processes/2 The EPFO was set up in 1952 under the Ministry of Labor to give a DC Scheme (EPF) for private segment representatives EPF covers workers in a predefined set of ventures Reflects a static monetary structure Civil Servants had a DB Pension Scheme, in light of the British System With nationalization of the protection area, there was no opposition in the market for benefits items, for example, annuities. Accordingly, ability around there did not create to the disservice of demonstrable skill in this segment

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Policy Framework and Processes/3 Each part of the government disability framework grew autonomously and diverse offices were made to be in charge of their working. There was almost no coordination among them Until as of late, minimal powerful consideration was paid to managerial and common administration change. So modernization and demonstrable skill in adjusting different segments to universal improvements and with national needs was extremely restricted Overall approach structure and clear ID of issues or issues were deficient. So strategy reactions were impromptu

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Policy Framework and Processes/4 II. Who were the Key Policy Makers? Because of an absence of co-appointment, there were numerous focuses of basic leadership for the framework Private Sector Employees: While the EPFO has a tripartite board (with representation from the administration, worker's parties and bosses); the work serve has a prevalent impact and delegates all individuals

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Policy Framework and Processes/5 Ministers of Labor far and wide are typically not heavyweights in the political field; and could undoubtedly be "caught" by sorted out worker's organizations in India speak to little extent (under 5 percent) of the work drive, yet practice unbalanced impact. Their initiative has customarily had low financial aspects education

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Policy Framework and Processes/6 Civil Servants are the recipients of the common administration annuity plot; additionally responsible for the development and arrangements of the plan. This makes a critical Principal-Agent and good peril issue Occupational annuity arranges: Employers are the key leaders. Rules are given by the Income Tax Department that does not have the limit with respect to powerful supervision

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Policy Framework and Processes/7 III. How have Policy Processes advanced after some time? Every part of the Indian Social Security System has advanced contrastingly after some time. Specifically, EPFO plans don't mirror the changing financial worldview

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Policy Framework and Processes/8 Because of assortment of monetary and demographic components, (for example, pressing requirement for monetary combination and adaptability); individual and populace maturing, a developing requirement for common administration benefits change was felt, especially at the middle. States for the most part take after the Center's lead

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Policy Framework and Processes/9 It was in the later 50% of the 1990s that senior authorities in the Ministry of Finance started to detect that common administration annuity changes were required (Given force by the 5 th Pay Commission Report which expanded compensations and benefits of even the officially resigned government workers considerably, yet typically its calls for 30% diminishment in common administration estimate had constrained achievement) Concrete activity on benefits change was started by a gathering of submitted people under the initiative of S.A.Dave, and an entrepreneurial Minister in the Ministry of Social Justice and Empowerment, Ms.Maneka Gandhi

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Policy Framework and Processes/10 The outcome was the Old Age Social and Income Security Report (OASIS) which maybe surprisingly gave a system to contemplating maturity security in India The Report had suggested a radical change in the annuity reasoning to a completely supported DC conspire, with resulting exchange of dangers to people. It evoked extensive level headed discussion, however the Ministry of Labor stayed unconvinced

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Policy Framework and Processes/11 In January 2004, another Civil Service Pension Scheme, which took after key logic and plan components of the OASIS report, was presented. It is a convenient DC plot intended to take out pre-retirement withdrawals with commanded buy of annuities at retirement The plan is at first material to new participants to the Central Government however in an empowering improvement, a few states have communicated an enthusiasm for actualizing it for their government employees

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Policy Framework and Processes/12 This will suggest move to the new Scheme will be a long one (around 40 years) and meanwhile, benefits use will build The pool of long haul legally binding reserve funds will increment quickly

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Policy Framework and Processes/13 In December 2004, the Pension Fund Regulatory and Development Agency (PFRDA) was set up as a controller for the provident store and benefits area India is one of not very many nations that have built up a different controller for this segment

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Policy Framework and Processes/14 The PFRDA has been given the order of advancing seniority salary security by setting up, creating and managing annuity reserves. So polished skill and framework wide point of view are probably going to get an impulse The PFRDA is relied upon to adjust the premiums of all partners by guaranteeing that annuity stores stay in a safe and separate record; assets are contributed by rules; proper record keeping and revelation happens; Provident and Pension Plan executives give auspicious data; and setbacks are recognized on an opportune premise and suitable move is made

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Policy Framework and Processes/15 Only a fifth of the work compel is secured by benefits and provident reserve plans; laborers who are not utilized in the formal private or government segment subsequently should be furnished with market-based yet very much directed annuity plans. New respectful administration benefits conspire has an arrangement for willful commitments Informal and additionally sloppy part is extremely heterogeneous. There is incredible assorted qualities as far as size and normality of pay, reserve funds potential and general consciousness of the requirement for and capacity to put something aside for retirement

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Policy Framework and Processes/16 The test of organizing a benefits plot for the sloppy division has been taken up by the administration of India. A gathering of annuity specialists, delegates from non-government associations, small scale back experts, strategy creators and industry professionals are at present during the time spent outlining a retirement financing plan for laborers in the sloppy part A basic errand will be to teach potential supporters in this area and market benefits items to the gathering

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Reforms and Prospects/1 Pension changes have started at the last part of India's change; and after significant advance has been made in changing monetary and capital markets The as of late reported focal spending plan 2005-06 has made unassuming yet fundamental strides towards the justification of provident and annuity stores segment

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Reforms and Prospects/2 Rationalization of expense structure for long haul reserve funds, improvement of wage duty structure, opening up benefits division to remote direct speculation, organizing work creation and an activity to create Mumbai as a territorial "center" are a few measures proposed in the spending that will positively affect annuity c