Unfunded pension scheme is a tax on future generations, says Sanyal
New Delhi, December 26, 2022
Revival of old pension scheme by some States reverses recent pension reforms says member of PM’s EAC; economist sees 2023 as a difficult period given current stress in global economy
Concerned over revival of the Old Pension Scheme by certain Opposition-ruled States, Economic Advisory Council to the Prime Minister (EAC-PM) member Sanjeev Sanyal on Monday said unfunded pension schemes are ultimately a tax on future generations.
Mr. Sanyal further said given the current stress in the global economy and the repeated downgrades done to the world GDP growth numbers by international agencies, it was quite obvious that 2023 would also be a difficult period.
"It should be very clear that unfunded pension schemes are ultimately tax on future generations. Therefore, one should be very, very careful to reverse pension reforms that have been done with great difficulty over the last couple of decades," he told PTI in an interview.
Mr. Sanyal was responding to a question on some Opposition-ruled States' decision to switch to the Old Pension Scheme (OPS).
The OPS, under which the entire pension amount was given by the government, was discontinued by the NDA government in 2003 from April 1, 2004.
Under the New Pension Scheme, employees contribute 10% of their basic salary towards pension while the State government contributes 14%.
Two Congress-ruled States, Rajasthan and Chhattisgarh, have already decided to implement OPS. Jharkhand too has decided to revert to OPS, while Aam Aadmi Party-ruled Punjab recently approved the reimplementation of OPS.
Asked what measures the government should take to reduce the trade deficit with China, Mr. Sanyal said one should look at the overall trade deficit.
"Nevertheless, reliance on one country is an issue that we do take seriously and therefore there are efforts being made that key ingredients in pharmaceuticals or chips for manufacturing and so on are not coming from a single foreign source," he said.
The trade deficit between India and China touched $51.5 billion during April-October this fiscal year.
The deficit during 2021-22 had jumped to $73.31 billion from $44.03 billion in 2020-21, according to the latest government data.
"So this is why we have as you know, given a fair amount of impetus including the production linked incentive (PLI) effort, in order to make sure that the key ingredients that are key inputs and ingredients into our industry are manufactured at least to some extent in India," he emphasised.
The government has announced PLI scheme for 14 sectors, including white goods, textiles and auto components.
The objective of the PLI scheme is to make domestic manufacturing globally competitive, create global champions in manufacturing, boost exports and create jobs.
While observing that India's overall merchandise trade deficit has indeed widened, he said, this is partly because the economy is reviving strongly while the rest of the world is slowing down.
"Having said that, let me add that services exports continue to do very well and therefore the current account deficit is significantly smaller than the trade gap," he noted.
On India's overall macroeconomic situation, he opined that apart from the problems in the eastern Europe, a sharp surge in COVID cases in China will possibly have spillovers on rest of the world's economic growth.
"So, given this context, India's economic growth remains very resilient. It is by far the fastest growing (major) economy in the world. And most indicators are that, India will remain so in 2023- 24 as well," Mr. Sanyal asserted.
According to him, India needs to be vigilant about the prospect of resurgence of COVID-19.
"There are macroeconomic stability issues that we need to be continuously monitoring particularly in the area of inflation and also in the case of current account given that our export markets are all slowing down," he opined.
Despite these concerns, Mr. Sanyal observed that India's underlying long-term momentum remains in good shape and that the country's supply side of the economy has not been as productive and efficient ever.
Earlier this month, the RBI revised down its growth estimate for FY23 to 6.8% from the earlier 7%, while the World Bank revised upwards its GDP growth forecast to 6.9%, saying the economy was showing higher resilience to global shocks.
Replying to a question on high inflation during 2022, Mr. Sanyal pointed out inflation in most part of the world is due to energy prices and disruptions caused by the war in the eastern Europe as well as the monetary and fiscal expansion that had happened during the COVID crisis.
"India was very restrained in using both monetary and fiscal resources. As a result, our inflation spike was much more muted than that of virtually every other country in the world," he said.
According to Mr. Sanyal, in this context, India's inflation going slightly above the tolerance level of 6% is understandable.
Pointing out that the latest reading suggests that inflation has again fallen back within the band, he said India did rather well under the circumstances and that the country's inflation expectations remain well anchored.
"Nonetheless, we will continue to monitor this very, very closely, especially in the context of possible supply chain disruptions caused by developments in China," Mr. Sanyal said.
The central bank has been tasked by the government to ensure that retail inflation remains within the range of 2-6%.
The inflation print for November has come under 6%, within the tolerance band for the first time after 10 months.