Developing Pensions Market in India
July 3, 2001

Special Address by Mr Chirayu R Amin, President, FICCI

Mr N Rangachary, Chairman, IRDA
Mr Ajit Sharan, Jt Secretary (Insurance), Ministry of Finance,
Mr H 0 Sonig, Member, IRDA,
Mr N N Joshi, Chief Representative, ING Insurance,
Distinguished Panelists &
Friends,

It is with immense pleasure that I welcome you all to this Seminar on 'Developing Pensions Market in India'. I am specially grateful to Shri N Rangachary, Chairman, Insurance Regulatory Development Authority for kindly agreeing to spare his valuable time to be with us today to share his perceptions on this important topic. I thank Shri Ajit Sharan, Jt Secretary (Insurance), Ministry of Finance and Mr H O Sonig, Member, IRDA for chairing the Technical Sessions and the distinguished panelists for agreeing to give us the benefit of their views on this extremely contemporary issue. Let me also thank all the sponsors for supporting this programme.

The Pension Fund system that exists in India suffers from the twin disabilities of not being able to provide an adequate security net for the old age population and at the same time exerting a huge pressure on government offers. According to the 1991 census Reports, India has an estimated 314 million workers of which a mere 11% are covered by the formal pension system. The crumbling down of the Joint family system and the increase in Life Expectancy have aggravated the extent of insecurity arising from inadequate income at an old age. On the other hand the existing pension system for a small amount of working population based on defined benefit formula adds on heavily to the State's Fiscal Deficit. In fact it is estimated that if the present system were to continue then in a decade's time the pension expenditure of the Government would exceed over 5% of the GDP. Thus, keeping in view the urgent need to build up a wider security net for the working population while ensuring that the fiscal deficit is kept under check, the evolution of a strong and vibrant pensions market is the immediate need of the hour.

The pension fund industry once developed would lead to a higher inflow of returns. The privately managed funds if invested prudently over a long period would benefit both the fund starved industry and the employees. In fact most countries including Latin America were able to generate incremental savings of US $8-10 billion per annum which gave a large fillip to the investment position of those countries. In India too the pension fund industry can help improve returns tremendously.

While drawing up a private pension scheme in India we are fortunate to have several successful international models to choose from. For example, we could look at the Chile model which was implemented as early as 1981. The size of pension fund asset in Chile has now reached nearly 40% of the GDP as compared with the size of over 50% of GDP in many developed countries. A practical scheme of pension reform as demonstrated by international experience, should have mandated coverage with flexibility of decision and benefits with fund managers ensuring, of course, the long term financial security of the funds; low cost regulation; ease of profitability; favourable tax treatment; favourable investment returns and good service. Also. the real worth of pensions get largely eroded due to inflationary pressures and this too needs to be built into the Pensions model.

In fact, with respect to the development of the pension scheme in India, we have already had the foundation work done by the Dave Committee under the Project OASIS. IRDA, as you all are aware, has been entrusted with the job to finalise the guidelines and we all are sure that IRDA will keep up its commendable performance in this area as well, as it has done for the insurance sector.

It is important to note that the final success of a Pensions also largely depends upon the overall reform of the capital market, insurance industry and the tax regime. Macro issues like a further deepening of the financial markets, increased liquidity in the financial system and a more efficient redressal system (judicial system) will play a very crucial role in the performance of the Pension Fund industry. Another important factor that will contribute to the success of the Pension Reforms, is the ability of the government and the regulator to take all sections of the community into confidence including the employers, employees and their representative Trade Unions, the NGOs and the media.

The need of the hour is to chalk out the path of growth for which purpose we have all assembled here today. I am sure that this seminar will be highly successful in earmarking the future strategies that will ensure a fast and sustainable development of the Pension Industry. With these words may I request, Mr N N Joshi, to make the theme presentation and set the tone of deliberations.

Thank you.