ADB to grant $1 mn for NPS

NEW DELHI: The Asian Development Bank (ADB) will provide a grant for the New Pension Scheme (NPS) through its Japan Special Fund by giving $1 million for the project.

The grant will be managed by ADB and will help establish a broad-based income security system through pensions, especially for the informal sector workforce. This should help ease the fiscal burden of the government and contribute to the development of the national capital market, the Manila-based fund has said.

“India lacks income security coverage and cannot sustain the fiscal burden of its existing pension system,” ADB south Asia department principal financial sector specialist Cheolsu Kim said.

“The liability related to the unfunded pensions compound India’s public debt problem. The existing pension system is inadequately funded and unsustainable,” he said.

At present, participation in the NPS is mandatory for central government employees, while those working in state governments and other public and private sector employees, self-employed professionals and informal sector workers may join the scheme voluntarily.

The recurrent expenditure for the central government pension system has grown from 0.6% of the gross domestic product (GDP) in 1993 to 1.7% in 2002, while total pension liabilities have risen from 9.7% of net tax revenue to 12.7% in the same period.

A recent study estimated India’s unfunded pension liability at $426.9 billion, or 55.9% of the GDP, in 2004, further exacerbating the country’s already high level of national debt, which accounted for 84.9% of the GDP for the period.

The central government deposit contributions under the existing pension scheme in individual accounts and the investment returns are not based on market rates and the supporting infrastructure to implement the NPS has not been fully established.

“The grant will help the government’s transition to the NPS and develop the supporting infrastructure. This will require the government to provide proper pension products with adequate coverage, develop marketing channels through service providers, supporting institutions, such as the central record-keeping agency, and pension fund managers,” the bank said in a release on Wednesday.

Pension service providers need to become capable of delivering quality services to targeted beneficiaries to widen participation in the scheme and ensure regular pension contributions.

The Japan Special Fund was established in 1988 when Japan and ADB agreed to provide financial support for ADB’s technical assistance programme in the form of an untied grant. It aims to help ADB’s developing member countries to restructure their economies and prepare loan projects, thereby facilitating the recycling of funds to members.

The government of Japan has appointed ADB as the administrator of the fund. ADB assisted India’s pension reforms of the Employees’ Provident Fund in 1999, the unorganised sector in 2003 and selected state governments in 2004.