Saturday, January 12, 2013

Surrender to Traders

Courtesy: Internet


Government employees belonging to the Leftist unions in Kerala have been on strike for the last 5 days.  They are opposing the contributory pension scheme that the state govt has implemented for staff  from April this year.

What the govt of Kerala is telling the employees is that they should contribute 10% of their basic salary and DA (dearness allowance) to the Pension Fund Regulatory and Development Authority.  The govt will make an equal contribution.  When they retire they be eligible to withdraw 60% of the amount in the Fund and will receive a monthly pension from the remaining amount.

Most of the states in India and the central govt offices have already implemented this scheme.

The govt of Kerala has certain valid arguments for implementing the scheme.  The govt says that 80.61% of state’s revenue goes towards payment of salaries and pensions for govt employees. A meagre 19.39% is left for looking after the welfare of the 3.25 crore people of Kerala.  This is not a balanced distribution of the revenue.

The employees argue that the Pension Fund is investing the money in the share market, mutual funds and bonds issued by banks.  The share market does not and cannot guarantee any fixed returns.  Will there be any worthwhile amount given as pension when the employees retire?  Gauging by the returns currently yielded by the equity-based schemes, there won’t be.

The employees’ anxiety is genuine.  The govt’s arguments are valid too.

One wonders whether we cannot have any better investment schemes than the unreliable stock market.  Why should the governments capitulate to the stock market and the traders?

Recently the Nobel laureate-economist, Joseph Stiglitz, showed that the top 1% of Americans possess 25% of the country’s income and one-third of its wealth. 90% of the gains of growth go the top 1%. The plight of most Americans worsened in the last several years.  Who are these 1% people? They are the ‘monopolists’, people in the finance sector, and those who earn corporate revenues. 

There is growing unemployment, inequality and frustration in America, thanks to its economic policies.  Why should we too follow those policies?  Don’t we have other options?

Professor Robert Wade, who shared the platform with Stiglitz, accused America of promoting plutonomy.  Plutonomy means economic growth that is powered and consumed by the wealthiest upper class of the society.  In such a system, the government is quite powerless.  Power shifts from government to the business people.

Professor Ravi Kanbur, another speaker, cited examples of countries which did not follow the American policies to show that there was much less inequality in those countries.

I wonder why our government cannot redeem our economy from the traders.

Our Prime Minister has promised us a bleaker future.  He has assured us that the prices of many things including diesel will rise soon.  Subsidies will be gradually removed. 

It is the end of the welfare government in our country, in short.

Private employers will be free to cut wages and allowances as they are doing already.

Who will benefit?  We know that. 

17 comments:

  1. I have read many adverse comments on our initial policies of social economics. But this picture that is emerging is more scary.( I have seen the returns in employees'Pf annuities, almost nil in USA, now.)

    What happens to all our pension funds, how are the senior citizens going to sustain?

    ReplyDelete
    Replies
    1. The pension funds now are just another means for helping the capitalists and industrialists to run their business with other people's money.

      Imagine this situation, the 10% contributed by the employee and the govt each is invested in a recurring deposit in a bank. The returns will be much better than what the present pension scheme will give. Yet why does the govt insist on investing the money in equity-based schemes?

      Perhaps, we may have to control liberalisation of economy now that our economic growth is quite ok.

      Delete
  2. I am sure I am wrong, but I see this as a demand by the government that people gain financial literacy even before they become literate!

    RE

    ReplyDelete
    Replies
    1. Does the govt want to convert every citizen into some kind of a trader?

      Delete
    2. Yes, so the illiterates even while becoming financially literate can contribute to the growth of the country, reckoned in aggregates, to the benefit of the already grown!

      RE

      Delete
  3. Hi Tom, you have said it. But here in south Africa we are all on contributory pension, and the money is managed by a corporate body. Here it is going very well. So I doubt whether it does not depend on how the economy is handled by each nation. Yes America is the extreme; The civil servants are raising some points, right, but do they do justice to what they earn? I have been in South Africa for the past 18 years, I have not paid a single cent as bribe here; nobody expects it; the entire public service system is service oriented.

    ReplyDelete
    Replies
    1. Prasanna, if our money is managed properly by the govt or its agency there will be no problem. The problem is when the govt misuses it in order to cater to the interests of a certain section that has vested interests only. America started this process, this style. India is following it blindly.

      Bribe is quite a different issue, anyway. Perhaps, it will take centuries to make India bribe-free!

      Delete
  4. Very informative post.Might of money speaks like nothing else-remember Radia Tapes?

    ReplyDelete
    Replies
    1. Yes, Indu, only money speaks today. And when money speaks, nobody checks the grammar.

      Delete
  5. Money in stock market does not in any direct way influence the wealth of private companies contrary to public perception. SEBI (read govt body) is the only unit which gains from trading through transaction taxes. Private companies gain money only during IPOs.So it doesn't mean the government is trying to boost the other sectors...It just means that the Pension fund is ready to gamble with the money.We can only hope it is a calculated gamble!
    Speaking of America, we all know Occupy Wall Street was just the start!
    Great post!
    Cheers :)

    ReplyDelete
    Replies
    1. Joe, you may be speaking from a perspective quite different from that of India. If money in stock market does not influence the wealth of private companies, why do our (Indian) private companies indulge in such malpractices as insider trading and raise the prices of their stocks? I don't know how the stock market works. But I know that there's a lot of malpractice in it.

      Secondly, why would the employees opt for gambling with their money? What right has the govt to do that?

      Delete
    2. It is obvious the private players want the money that is with the govt. as pension funds. And the Govt( or whoever), want to make a fast profit( if at all the can), on the funds. It is all in the book balances which is an eyesore for vultures.

      If only Govt machinery had poured all those plan outlays of the six decades,in the proper channels,without leaching out on the way , there would have been no need to eye those funds!!

      As you rightly suggested de-liberalisation could be better.

      Delete
    3. Yes, Pattu, that's exactly what I'm suggesting. De-liberalise.

      Delete
  6. very informative post indeed. This is certainly the end of welfare government.

    ReplyDelete
    Replies
    1. Let's hope the system will change, and change soon.

      Delete
  7. The neoliberal values permeate all countries, bulldozing all opposition, in spite of so much evidence showing the damages they cause

    ReplyDelete
  8. That's called POWER, Sunil ji.

    I'm living in that POWER.

    Every Indian is living at that unfortunate level.

    ReplyDelete

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