The Telegraph
Since 1st March, 1999
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Interim key unlocks pension fund
- Left still wary of stocks nod

New Delhi, Jan. 22: The Manmohan Singh government today announced it would go ahead with limited pension reforms that offer central employees the option of investing a fraction of their pension funds in the stock market.

The step, which comes after a series of reform skirmishes with the Left, is being taken despite the recalcitrant ally’s opposition.

A bill to allow private players into the lucrative pension sector and set up a regulator is hanging fire because of the Left’s misgivings.

The government will, however, try to bypass the Left blockade by notifying the investment options for employees covered by the contributory pension scheme launched three years ago.

The employees’ options include one that allows fund managers to invest up to 5 per cent of the pension cash in stocks. Another permits them to invest the entire corpus in rock-safe government securities. (See chart)

The income from the fund after retirement forms the employees’ pension, unlike the current system that imposes an undefined liability on the government alone. Some Rs 1,400 crore has already accumulated in this fund.

Prime Minister Singh led the push to usher in the limited pension reforms, urging a meeting of chief ministers to allow a part of the funds to be parked in shares to expand the social security net and ensure healthy state finances.

“It is my belief that there is a lot to be gained by moving forward and allowing a multiplicity of pension products delivered by a variety of agencies to people,” Singh said.

The Prime Minister addressed a Left concern by saying that initially, only PSU financial institutions will manage the fund.

The government also tried to sweeten the initiative by suggesting that the new guidelines would not be binding on the states but should be viewed as an “interim model”.

“Pending the passage of the bill, it is necessary to adopt an interim model for investment of accumulated subscriptions,” finance minister P. Chidambaram said.

By pitching it as an interim measure, the government seems to be hoping, at best, to turn the Left around or, at worst, laying the ground for a retreat if the bill is defeated.

Several BJP-ruled governments are among those which support the scheme. In normal circumstances, that should have reassured the government of the BJP’s backing in Parliament. But on the treacherous terrain of power politics, little can be taken for granted.

As many as 17 states, including the BJP-ruled Gujarat, Rajasthan and Madhya Pradesh, have joined the scheme. Two more might take the plunge.

However, Left-ruled governments led by Bengal opposed the changes, toeing a political line that does not fully reflect the private views of those in power.

The rising pension bill and an eagerness to take forward the reform process have prompted the Centre to take the plunge. The payout is expected to touch Rs 35,020 crore for the Centre and Rs 65,081 crore for the states by 2009-10.

But the Centre proceeded with caution by saying that it has only extended to the pension scheme “conservative and restrictive” investment rules governing non-government provident funds.

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