Contributory pension scheme and its flawed logic

The contributory National Pension Scheme for government servants brings uncertainty about future pension benefits of government employees and makes government jobs less attractive.

Employees of Kerala Government began an indefinite strike today to protest against the pension scheme, though it will not affect serving employees who would continue to be eligible for statutory pensions. It will be the new recruits who would be hit by the pension scheme.

The government argues that more than 80 per cent of its revenues were now being spent on salaries and pensions. Though the pension scheme will only cause an immediate increase in government spending with a ten per cent contribution to be made to the pension fund, it will free the government from paying pensions to the new recruits two to three decades from now.

The government says that there was four-fold increase in pension liabilities over the last decade. However, this is in proportion to decadal increase in revenues and borrowings of the government. This is not to say that the level of expenditure on salaries and pensions are justified. It rather points to continuing inefficiencies of administration in checking expenditure and tax collection, despite availability of new tools such as computers. Large scale leakage of revenues remains unplugged. The employees too had not been helpful in this regard. Over-staff and idling are not rare in government service.

The government as well as employees contributions into the pension fund are to be deposited in government securities, public sector bonds and in mutual funds. When the deposits are made in government securities, the government itself would be paying interest on its own contribution and employees’ contribution. This is not going to improve government finances. Like salaries and pensions, interest payments are also a heavy burden on the State government.

Mutual funds offer no guarantee of reasonable returns. Some of the pension funds run by them have not performed well, giving some indication of what would happen to the money of employees. The employees would have to bear the cost of the authority formed to run the pension fund. When authority makes investments in mutual funds, the employees would also have to bear the fund management charges imposed by the mutual funds. Some of the government-run welfare funds give an impression what these costs would be— the welfare fund boards eat away much of the contribution by the workers. It would not be surprising if the government would have to give grants to the authority in future to ensure a reasonable pension to the employees a few decades from now. In any case, the pensions then would neither be assured or growing (with every pay revision) as is the case now.

The net result could be that the government jobs would not attract talents. And the performance of government could fall further. It is also doubtful whether the pension scheme would help the government to overcome in financial problems. The real beneficiaries would be those who get to handle the funds.

Members of the Assembly care when it comes to drug prices

Most of the members of the Assembly took care to attend the special discussion on the report of an Assembly committee on drug prices and related issue in the House on Thursday. There was unanimity in the House that the skyrocketing drug prices should be checked. The members cared when it came to health care and medicines.

They pressed the Health Minister V. S. Sivakumar to make it mandatory for doctors to prescribe drugs by their generic names and Mr. Sivakumar announced that it would be made mandatory for doctors in government hospitals. As to other doctors, he would have to seek legal opinion.

Ruling Front members even egged on the Minister to turn the Kerala Medical Services Corporation into a super store for bulk purchase and supply of drugs even to the private medical shops. But, Mr. Sivakumar appeared to reluctant; citing infrastructural, financial and logistical problems. However, he was forced to announce that the Health Secretary would be asked to examine the feasibility.

The two proposals, if implemented, would take the State a long way in checking drug prices.  Legally, a medical shop could now supply on the drug prescribed by the doctor. If it is by the brand name, he would have to supply that brand and not any of the alternatives. If prescription by generic name is introduced, it would give the consumer a choice. He can buy the brand and price level he chooses. (As of now, medicines are the only items over which the consumer has no choice.)

This would have an impact on prices as the price difference between various brands can be very high. Some branded drugs prescribed by the doctors could be several times higher than the generic variant. Now Internet sites such as PatientIndia are available that could help the consumer to make the choice by listing prices of the generic and branded drugs. Advice can also be received from the doctor regarding quality, but the final choice would be that of the patient.

If the Corporation enters the wholesale market in a big way, it would surely bring down prices provided that corruption in the organisation is checked. It can also help to check quality. It is imperative that the government would have to ensure quality of generic drugs when doctors start prescribing them.

For further reading:
Doctors to prescribe generic drugs in govt. hospitals

Proposal for five-day work week in Kerala

The proposal for five-day work week for government employees in Kerala is borne out of financial exigencies rather than any well-thought-out plan to improve administration.  As it stands now, the reduction of a work day result in poorer services for the public though there may be gain in terms of governmental expenditure in running the services. So, it would be lesser service to the public at lesser cost.

However, the situation could be qualitatively different if the government contemplates five-day week after efficiently implementing e-governance. Many of the government services could be offered to the citizen at lesser cost on a 24×7 basis if the e-governance system is expanded to cover more and more areas. Then curtailment of a work-day may not affect the public much.

As to the financial problems of the government, it is the governments own creation. It had created more than 15000 new posts in one year, adding to the burden of the exchequer.  Considerable sums are being spent for welfare though there is no assurance that it reaches the right hands. Government land is being granted for a pittance to the farmers and the landless and also to influential organisations. Many of these gifts are not justified.  This is when it has established schemes and ways for routing welfare assistance. The Government  indeed cared for the poor and disabled by raising the welfare and old age pensions which was a welcome measure. However, a casualty of the financial strain faced by the government was the noon meal scheme in schools.

Secretariat decked up for Onam holidays

Secretariat decked up for Onam holidays (file photo)

It is high time that the government focused on augmenting revenues from the flouring trade in gold, textiles and hospitality. Special concessions to the IT sector are no more needed. Government could either reduce expenditure or improve efficiencies by routing its subsidies in cash through the banks. It is also worth thinking whether government should maintain cars and drivers for its office or provide them with a car allowance. This, in fact, was one of the recommendations of a expenditure commission appointed by the government. Several such recommendations for austerity have been gathering dust.