The linking of the Atal Pension Yojna to other welfare schemes is a positive step towards greater operational efficacy
In order to be successful, social schemes in India need more efficient design structures and easier and more effective implementation procedures. The first step towards achieving this would be to streamline the existing structure of the implementing agencies as this would reduce the economic cost incurred. Thankfully, the current government has already realised the benefits of optimising implementation and has begun to link various schemes to each other. The latest pension scheme in India, the Atal Pension Yojana (APY), will utilise the organisation architecture of the National Pension Scheme (NPS) launched in 2004 and will also be using the accounts created under the Pradhan Mantri Jan-Dhan Yojana (PMJDY) to broaden its provision.
Linking with the NPS
The biggest advantage of linking the APY to the NPS is the number of benefits availed by utilising the NPS’s established structure. For example, the Union Budget 2014-15 made the NPS more lucrative by granting an extra tax deduction for investments in the NPS. The Finance Minister announced that a separate tax deduction of Rs 50,000 will be allowed over and above the limit of Rs 1.5 lakh set by Section 80C of the Income Tax Act, 1961. This was done to increase the demand for the NPS.
Another bonus to the APY is that it can piggyback on the subscriber base already accumulated by the NPS. In a period of 6 years, the NPS has managed to accumulate 38 lakh subscribers. However, this number could still increase; 38 lakh subscribers still only form a small percentage of the total population. One of the reasons for this is the low commission rate for NPS agents. They consequently do not have sufficient incentive to promote the scheme and the net result is that people are comparatively unaware about the scheme. Keeping this in mind, the Finance Ministry has announced that pension schemes for the unorganised sector would be linked to the PMJDY .
Linking to the PMJDY
The PMJDY is a scheme to improve financial inclusiveness amongst low income groups and was launched in August, 2014 in two phases. The first phase will end on August 14, 2015 and its target is to provide bank accounts to all families that don’t already have one. The aim of the second phase will be to provide micro finance and unorganised sector pension schemes though ‘business correspondents’. The PMJDY utilises the Aadhar framework as a delivery mechanism. The Aadhaar is the ID number issued by the Unique Identification Authority of India. It was introduced with the primary objective of providing identification to Indian citizens who did not have government issued identification documents. As of January, 2015, the PMJDY scheme had managed to open 115 million accounts. However, only 28% of these were active while the rest had zero balance.
The Finance Ministry has been trying to activate these zero balance accounts by linking them to various Direct Benefit Transfers such as the APY. This approach is very similar to the various methods used by the government to incentivise Aadhaar cards. One such method was to use Aadhaar to create the subscriber database of beneficiaries for schemes such as Mahatma Gandhi National Rural Employment Guarantee. Another was to make the Aadhaar sufficient proof for “Date of Birth” to obtain a Permanent Account Number (PAN card), an identification for Indian citizens who pay income tax. Linking PMJDY accounts to such schemes would not only increase financial inclusiveness in the country but also help ingrain a habit of long term saving among individuals.
This step taken to link various authorities will help in efficiently and effectively delivering social welfare schemes to Indian citizens. Reducing the level of compartmentalisation across the various social welfare schemes would streamline the process for both government and citizens. Clustering various social schemes together will help in directing the energies of the various governments authorities involved and will reduce the transaction costs faced by subscribers who have to deal with cumbersome processes in multiple government offices to avail of these schemes. For instance, the potential of Aadhar as a common database for all social benefit schemes would make identification of beneficiaries much easier as well as reduce the amount of paper work and documentation necessary for beneficiaries to avail these benefits.
However, there is still a vast scope for improving the operational efficiency of social welfare schemes such as the APY. A greater use of innovative processes and technologies will probably be the next major step, though awareness and finances may initially be a burden in achieving this. Most government authorities have already using mobile phones as a platform to interact with subscribers to their schemes. The next innovation would be to use electronic payments via mobiles for directing cash transfers. Vodafone has tried to bring mobile cash transfer services to India through M-Pesa but a lack of digital and financial education has restricted its growth in India. There may still be a long way to go, but the linking of schemes is certainly a positive first step.
Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher
Image credits: Ekta Parishad