Pension schemes in India The present Congress Government in India wants to give nod to Foreign Investment in Indian Pension Funds. This proposes 49% investment in the Indian pension sector. In the absence of social security cover for the burgeoning country wide population only a miniscule 12% remain in the security net of a formal pension schemes in India. It is necessary to remember that a staggering 90% of the people in this country work in the unorganized sectors without any safety net for the old age. 50% of all the production in India comes from this unorganized sector therefore it is too crucial to ignore in the best of circumstances.
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In keeping with the insecurities of the non-pensioned segment of Indian society, there is a need to reform the present pension structure and include the maximum number of people within this financial safety net. Moreover, these reforms are needed through a fast-track process. By mobilizing the household saving through mutual funds, pension funds, and insurance it is possible to use it for corporate investments, which in turn paves the way for expansive financial security that includes the maximum number of people who remain deprived presently.
However, this is better said than done since the pension sector is capital intensive in all regards, therefore it requires a huge capital inflow to make the process work, and bear fruit after a suitable gestation period. This is where the need for Foreign Investment in Indian Pension Funds comes into play. It can provide the needed long term infrastructure support required for mobilization of savings from Indian household and its subsequent use in corporate investments.
It is interesting to note that 90% of the pension assets from all over the world come from Organization for Economic Cooperation and Development (OECD) countries and ½ of the total asset contribution comes from USA. Through FDI, pension fund global companies can now target the vast Indian market, which is full of possibilities and inexhaustible opportunities. Even if India is able to attract only 1% of the total funds from the global companies, it can raise the assets from the present 5% to as much as 17% in the coming times, which is no mean achievement by any standards.
Besides this obvious one, some of the other projected benefits from proposed FDI scenario include availability of pension product to private sector employees who until now have to depend upon largely insurance-based schemes for post retirement financial security. With the introduction of foreign investment, it is possible to make new competitive and user-friendly services and products for the use of consumers. Finally, FDI also hopes to reduce the fiscal stress on both state and union governments.
Even with so many proposed benefits, there is much speculation regarding the feasibility and real benefits associated with Foreign Investment in Indian Pension Funds, no wonder the debate still rages on!
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