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Big push to stalled pension reforms

New Delhi, Jan. 19: To build a consensus on the stalled pension reforms, finance minister P. Chidambaram has convened a meeting of state chief ministers and finance ministers next week.

States are expected to join in bringing about a consensus to hasten up the reforms, stalled for the last two years over objections by the Left which fears foreign pension managers could siphon off large funds on opening up of the sector.

Chidambaram will be roping in Prime Minister Manmohan Singh to use his charm to get the state chief ministers to agree to the new contributory pension model.

Singh had earlier tried to soft talk Left leaders into agreeing to bring pension reforms back to the fore. However, this did not yield any tangible result to the Congress-led government.

Ostensibly the conference is to bring on board all the states into the new contributory pension scheme that places a lighter financial burden on the state exchequer.

However, the idea is to get the chief ministers to agree to the pension reforms at the meet, giving the government a better chance with its Pension Fund Regulatory and Development Authority (PFRDA) Bill which has been hanging fire for about a year.

The Manmohan Singh government has gone on record about its plan to introduce this bill along with the insurance bill in the coming session of Parliament.

The new pension model can work only if there is a pension regulator and private specialist fund managers are allowed to operate.

Though the new contributory pension model appears to be the only way for states to stop the huge pay-out on burgeoning pension bills, only 16 have opted for it.

The states include Uttar Pradesh, Andhra Pradesh, Madhya Pradesh, Jharkhand, Assam, Maharashtra, Gujarat, Rajasthan and Tamil Nadu.

Missing from this roster are the Left-ruled states.

The problem for the Left in accepting the bill is the opposition by its unions and ideologues.

To woo the Left, the government retailored the PFRDA bill last year. The changes include setting a FDI cap of 26 per cent, giving pension plan holders the option of parking all savings in government securities, barring pension funds from parking funds abroad, enlisting at least one PSU fund manager and allowing partial withdrawal from pension accounts by including a Tier-II account.

The Left is unhappy, despite the changes. It has attacked the bill on a number of grounds.

In their dissent notes, the CPM leaders had expressed concern over the massive erosion in savings if pension contributions are parked in the stock market.

The Left leaders also point out the shaky foundations of the new Indian pension model, which is based on an earlier Chilean model. That experience was a failure with the pension fund managers finding it difficult to pay the employees even the principle amount.

But the real dissent is over foreign direct investment (FDI) in the sector. The Left fears transnational pension funds will create a situation where they would siphon off savings from local arms to offshore funds. Both the CPI and the CPM have also opposed the bestowing of powers to the new pension regulator at the expense of the legislature.

Officials say the pension bill can be passed in the face of Left opposition, if the BJP supports the government. But this will open up a chasm between the ruling coalition and the Left ahead of the crucial state assembly elections.

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