why Social security in India needs a new deal

India is one of those countries with partial coverage, where these benefits are available to a small segment of the population working in the organized sector. Given the advantages that accrue, India needs to do more to make social security available to all. Recent developments relating to identification and inclusion of individuals and businesses have shown that it may now be possible to put in place a universal social security system in the country

Social security is defined by the International Social Security Association (ISSA) as “any program of social protection established by legislation, or any other mandatory arrangement, that provides individuals with a degree of income security when faced with the contingencies of old age, survivorship, incapacity, disability, unemployment or rearing children.”

Social security is the key to long-term social and economic development and most countries have some type of social security system in place. ISSA estimates that around half of the global population has access to one form of social security or the other, while only 20% enjoy adequate social security cover.

India is one of those countries with partial coverage, where these benefits are available to a small segment of the population working in the organized sector. Given the advantages that accrue in countries with comprehensive social security systems, India needs to do more to make social security available to all. Recent developments relating to identification and inclusion of individuals and businesses have shown that it may now be possible to put in place a universal social security system in the country.

A key requirement for having an extensive social security program is identification of members and beneficiaries. Till recently, this was a challenge in India, because the bulk of the workforce was in the unorganized sector, which, by its inherent features – poor record keeping, scattered presence, exclusion from most legislation etc., made it difficult to obtain and monitor information necessary for operating a social security scheme. However, measures taken by the government, such as adoption of the GST, Aadhar as an identity proof, tighter registration of vendors and hawkers, enhancement of IT payer base and the success of Jan Dhan program in financially including the mass of the population have all made it possible to identify everyone, and direct schemes and programs to the desired segments. Around 14 million businesses, big and small, are now registered under GST, about 50 lakh street vendors have been identified in 125 urban centres with a view to extending welfare benefits to them and almost the entire adult population has a bank account and Aadhar card.

With these initiatives, the hitherto unorganized sector workers, who worked in the grey zone and who remained practically without an identity, are now emerging from the shadows, and can now be more clearly identified and located. It will now be possible to direct schemes to them in the knowledge that monitoring and supervision can be done It should therefore, be possible to roll out a nationwide social security scheme extending benefits such as old age pension, unemployment allowance and disability benefits to all workers.

There are a number of social security systems in place globally. However, the US system seems more appropriate for emulation by India. The USA’s Social Security scheme is a mandatory contributory scheme applicable to everyone in the working age group. It is a modest scheme, designed to keep people out of poverty, and provides a minimum level of assistance. Employers and employees, including the self-employed, have to join and contribute under the scheme. It is a Pay As You Go (PAYG) scheme, in which current contributions go to pay pensions and other benefits. Surpluses are retained in ‘Trust Funds’ and invested in gilt-edged securities. Benefits extended to employees include pension to retirees and survivors and to the disabled. Currently, 95% of the working population in USA is covered, numbering 180 million with benefits paid to 65 million members.

Like in the US, the Social Security scheme in India should also be mandatory and contributory. Mandatory, because the scheme should apply to all, and as past experience has shown, voluntary schemes run out of steam very soon. It must be contributory, so as to lessen the burden on the government and make each individual responsible for his/her future. Further, it should be a PAYG scheme, in view of India’s favourable dependency ratio which will enable a large corpus to be built up before payments commence.

Many existing schemes that cater to specific social security needs such as National Social Assistance Program and its state-level offshoots could be withdrawn once a nationwide social security program is in place, and members become eligible to receive benefits under the scheme.

There will no doubt be considerable administrative and organizational challenges in implementing the scheme, and some people will still be left out, especially in rural areas, but the task is too important to be ignored and must be taken up on hand now.

There is no time to be lost in ushering in a comprehensive Social Security Scheme in India.

(The author is former chairman of Pension Fund Regulatory and Development Authority (PFRDA))