Why world's 'fastest growing economy' cannot afford pensions for its elderly

The Modi government’s refusal to make more resources available for pensions must be seen as a clear demonstration of class bias

Representative image
Representative image

Prabhat Patnaik

We observe a strange phenomenon every day, so strange that its strangeness goes generally unnoticed. Government spokespersons, from the prime minister downwards, repeat ad nauseam that India is the most rapidly growing major economy in the world today, that it will soon become a $5 trillion economy, that it has overtaken China in terms of the growth rate of the GDP.

Yet the same spokespersons claim that the government has no money to pay for the Old Pension Scheme for government employees, let alone for a proper universal, non-contributory pension scheme for the millions employed in the unorganised sector.

The ‘world’s fastest-growing economy’, it appears, cannot afford pensions for its old — just as it cannot afford an adequate diet for its female population, since 57 per cent of females between the ages of 15 and 49, according to the NFHS (National Family Health Survey), suffered from anaemia in 2019-21 (up from 53 per cent in 2015-16).

Likewise, this ‘fastest-growing economy’ cannot provide adequate nutrition to its population, because of which it ranks 111th among the 125 countries in the World Hunger Index. The proportion of the rural population that cannot access the minimum norm of 2,200 calories daily that the old Planning Commission had taken as the benchmark for rural poverty rose from 68 per cent in 2011-12 to well over 80 per cent in 2017-18, according to data from the NSS (National Sample Survey).

The only argument advanced by defenders of the New Pension Scheme is the fiscal argument, taken to be axiomatic. The moment one mentions the Old Pension Scheme, the immediate response of most media persons and economists is: “But the government cannot afford it.”

However, if the economy is growing by 6-7 per cent per annum as the government boasts, then (since the number of pension-earning government employees is not growing at this rate), the pension as a proportion of GDP should fall over time. In other words, far from the pension becoming unsustainable, it should become easier to accommodate. Then why is the government claiming the contrary?

The reason cannot be that while GDP growth is rapid, the government’s fiscal growth is somehow constrained — there is no earthly reason why this should be so. The real reason must be that the government simply wants ever-larger proportions of the GDP to go to the capitalists and the rich, and the convenient argument is that such transfers boost investment and hence GDP growth.

There is, however, no justification for that argument either. The usual claim that capitalists invest more if given more money was disproved almost a century ago by bourgeois economist J.M. Keynes and Marxist economist Michal Kalecki, who showed that capitalism is a ‘demand-constrained system’ where output, investment and growth are boosted by increasing aggregate demand — not by transfers to capitalists. The Modi government’s refusal to make more resources available for pensions must be seen as a clear demonstration of class bias.

The government’s crowing over the growth rate even in the midst of acute distress, and its refusal to alleviate this distress in the name of boosting the GDP — in short, this entire GDP fetishism — contains an absurdity that recalls the maharajas of yore. Many of them extracted begaar (unpaid labour) to build palaces, and such construction would have been read as a high GDP growth rate.

Likewise, millions of old people are being pushed into inhumane living conditions now (only a tiny proportion of them paid a pittance of Rs 200 per month by the central government), not because there are no resources, but because the resources are appropriated by the capitalists and the rich.

In 2018–19, there were approximately 130 million persons above the age of 60 who needed a living pension of roughly Rs 3,000 per month. In that year, the gross national income of the country was Rs 187 lakh crore. The pension payments would have required no more than 2.5 per cent of the Gross National Income (GNI).

The payment of pension would result in expenditure, yes, but a part of it would accrue to the government in the form of taxes and hence could be re-spent. Assuming on a conservative basis that 30 per cent of such spending accrued back to the government, a total expenditure of 2.5 per cent of the GNI would require an initial injection of only 1.75 per cent.

Assuming that when the rich pay larger taxes, they do not necessarily stint on their consumption, this amount can be raised comfortably by imposing a wealth tax of only 1 per cent on just the top 1 per cent of the population. It follows, therefore, that there is no dearth of resources in the country for instituting a universal, non-contributory pension programme, from which those already on some pension scheme ensuring more than Rs 3,000 per month would be excluded.

Surely, though, the number of potential pensioners would have increased by now compared to 2018-19, and because of inflation, the amount of Rs 3,000 per month would have to be revised upwards? No, because meanwhile, the national income increased too, both because of real growth and because of the price rise that raises nominal national income. In fact, since the number of beneficiaries would not have grown at the same rate, pensions would now require a smaller share of the GNI and even smaller fiscal effort.

With neo-liberal capitalism reaching a crisis of overproduction, greater State expenditure — financed either by a fiscal deficit or by taxes on the rich — is urgently required. Neo-liberalism, however, is opposed both to a larger fiscal deficit and to higher taxes on the rich. In this context, a universal non-contributory pension scheme could solve the crisis.

This article originally appeared in People’s Democracy

Follow us on: Facebook, Twitter, Google News, Instagram 

Join our official telegram channel (@nationalherald) and stay updated with the latest headlines