Unlike other developed nations, India does not have a robust social security system. Given that the country has a teeming population of over 1.3 billion, this is a major concern area. While the majority of our population is now young we must look at the fact that we will soon have an aging generation on our hands. Financial inclusion of a great percentage of our population also stands out as another big worry. This means that with old age and age related issues, savings are likely to dwindle and pensions non-existent. The main promise of the NDA, a key point of its manifesto, was to sort this concern. Ever since the NaMo government came to power in 2014, its main focus has been to provide financial inclusion and some form of social security to the masses.
A number of schemes have been launched by the government to this effect. One of these schemes, the Pradhan Mantri Jan Dhan Yojana (PMJDY), went on to become one of the biggest financial inclusion initiatives in the world. Another major initiative launched by the NDA government was the Atal Pension Yojna (APY) (on 9, May 2015) named after former Prime Minister, Mr. Atal Bihari Vajpayee.
The APY scheme solicited a meager contribution from the working class towards a pension fund. All individuals between the ages of 18 and 40 can join in and the minimum period of the contribution was pegged at 20 years. This monthly contribution amount would depend on the pension amount opted (between INR 1000 and INR 5000). The scheme was linked to the PMJDY bank accounts making it a more rounded financial inclusion scheme. The government of India promised to contribute an annual sum equal to 50 percent of the user’s contribution or INR 1,000 (whichever is lower) for five years. To avail of this co-contribution from the government, however, those enrolling were required to sign up for the scheme by 31 December 2015.
A Review of the APY
The central government’s flagship pension scheme, Atal Pension Yojna was launched amidst much fanfare. It generated a lot of excitement since none of the previous schemes had promised such a vast coverage. The scheme had a target of covering some 2.2 crore people by December 2015. News reports from January 2016, however, reported immense disappointments. Only about 6.5 percent of the target was achieved in the initial 8 months of the scheme. In January this year banks revealed that merely 13.68 lakh Indians had opted for enrolment in the APY. In January, the FInance Ministry took stock of the poor response and grew concerned over the scheme’s lack of success. The ministry decided to extend the offer of government contribution to those who enrolled by March 2016. A number of camps were organized by the public banks of the country with an intention to gain mass enrollments (a move particularly successful in case of the PMJDY) but this did not bring much success to the scheme either. In the second phase of the scheme (from December 2015 to March 2016) also the APY fell short of its targets by a great measure. 26.11 lakh enrollments were targeted during this period but banks across the country were successful in gaining only 3.06 lakh new enrollments bringing it to about 11.73 percent of the target. These figures were supplied by the Finance Ministry and reported by the media in August 2016. The dismal failure of the APY to gain the expected traction has left the NDA government red-faced. Unlike the PMJDY, the APY is now a scheme struggling for its survival.
PFRDA’s Plans To Revive APY
According to the scheme details of the APY, the government of India detailed that the Pension Funds Regulatory Authority of India (PFRDA) would manage the funds collected under the scheme and invest it in a pattern suggested by the Finance Ministry. The PFRDA has now come up with a plan to breath new life into the APY. The regulatory authority put up a concept note earlier this month which read, “The idea is that the employer, wherever employer employees‟ relationship can be established (whether formal or informal), should be under an obligation to register all his employees/ workers under the pension scheme without any underlying obligation to contribute mandatorily for such employees‟ pension/ old age income security. Persons so registered have the option to opt out from such pension scheme. The aim is to increase coverage and participation under pension/ old age income security while preserving individual choice of not doing so.”
There are a number of noteworthy points in such obligatory enrollment (if implemented) –
- Enrollment is obligatory (responsibility of employer) but continuation is not obligatory (for the employee).
- This does nothing to spread financial awareness or educating the employee about the benefits of a pension scheme.
- Implementation may remain confined to government offices, PSUs and the corporate sector. The layers of society in real need of pension – the farmers, labourers, non-contractual laborers, domestic helpers, taxi and auto drivers, the unemployed lot – may all remain devoid of awareness and may remain excluded from its benefits at large.
- Non compliance on the part of the employer is not likely to be penalized.
APY’s Failure to Take Off
Lack of Awareness – One of the greatest challenges faced by the Indian masses is lack of financial awareness. In a country where the male child is still considered “budhape ki lathi” the need for pension and saving to invest in an ‘old age corpus’ is sadly missing. The resounding success of the PMJDY had lulled the government into expecting a natural success in this scheme as well and not enough wa done to promote it. The responsibility of educating and enrolling the masses was handed over to the banks. bank officials, on the other hand have remained under tremendous pressure with the government launching a slew of schemes targeting various sections of society. The time, attention, efforts, and dedicated focus that such a wonderful scheme deserved was completely missing.
Working Out The Returns – A look at traditional investment patterns in middle and low income groups of the country reveals that mass investment schemes need a great push. Discounting this factor, any scheme that anticipates contributors to keep investing month after month is bound to face hurdles. Add to this the fact that in a quickly evolving global economic scenario most Indians are unable to predict the inflation adjusted returns after such a long term. Fears are that even a pension of INR 5000 after about 30 years is likely to fetch the value of about INR 700 as on date. Also the returns on APY when compared with the government’s NPS bond schemes (9.09 percent) seems rather unattractive.
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