1. Rethinking India’s Pension System: Balancing Welfare and Market-Driven Approaches
Introduction:
The pension system in India has evolved significantly through three major schemes: the Old Pension Scheme (OPS), the New Pension Scheme (NPS), and the proposed Unified Pension Scheme (UPS). Each of these schemes reflects different economic phases and government policies, with varying degrees of state responsibility in securing post-retirement welfare for employees.
- Old Pension Scheme (OPS):
- Prevalent before 2004, OPS provided a defined benefit to government employees.
- Pensions were determined by a percentage of the last drawn salary, guaranteeing income stability for retirees, irrespective of market fluctuations.
- The government bore the full responsibility for disbursing pensions, ensuring retirees were insulated from economic risks.
- Advantages: Financial security, government-backed stability.
- Disadvantages: High fiscal burden on the government due to increasing life expectancy and rising pension payouts.
- New Pension Scheme (NPS):
- Introduced in 2004, NPS shifted to a defined contribution model, where both employee and government contribute to a pension fund invested in market-linked financial products.
- Pensions are no longer fixed, and payouts depend on the market’s performance.
- Advantages: Reduced fiscal burden on the government, promotes market participation.
- Disadvantages: Retirees are vulnerable to market volatility, with no guaranteed pension. This shift exposes pensioners to greater financial insecurity, especially during economic downturns.
- Proposed Unified Pension Scheme (UPS):
- Aimed at creating a hybrid model that balances the social security features of OPS and the market-linked nature of NPS.
- UPS seeks to include informal sector workers and ensure universal pension coverage.
- Key Proposal: Providing a minimum guaranteed pension, similar to OPS, while incorporating contributions similar to NPS.
- This scheme aligns with a global return to welfare policies, as seen in the post-COVID era, where governments are moving away from neoliberal economic frameworks.
- Concerns with NPS:
- Criticism: The NPS has been critiqued for exposing retirees to speculative market risks, especially during periods of economic crises.
- The absence of guaranteed benefits weakens post-retirement security.
- Limited Coverage: NPS currently excludes many workers in the informal sector, highlighting gaps in comprehensive pension security.
- Global Shift Towards Welfareism:
- Several countries, post-pandemic, are witnessing a return to welfare-based pension schemes, emphasizing universal social protection.
- India, facing similar challenges, must rethink its pension policy to align with this welfare resurgence.
Conclusion:
India’s pension system, currently a hybrid of welfare state models and market-driven schemes, needs urgent reform. The Unified Pension Scheme (UPS) can potentially provide a more secure and inclusive framework by combining elements of both OPS and NPS.
This approach could offer guaranteed pension security while mitigating market risks, ensuring a dignified retirement for all citizens, particularly those in the informal sector.
The broader return to welfare state principles globally offers an opportunity for India to rethink its pension strategy and promote social security for retirees.
Mains Practice Questions:
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1. Discuss the evolution of India’s pension system, highlighting the differences between the Old Pension Scheme (OPS) and the New Pension Scheme (NPS). How does the proposed Unified Pension Scheme (UPS) aim to address the limitations of both these schemes? (250 words)
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2. Rethinking FDI Policy: The Need for a Dedicated National Security Framework in India
Introduction:
India’s foreign direct investment (FDI) policy has become more stringent, especially in the context of national security. However, the absence of a comprehensive legal framework addressing national security concerns related to FDI and international trade remains a critical gap. This has come to the fore with issues surrounding Chinese FDI, especially during the COVID-19 pandemic.
- Existing FDI Regulations:
- Press Note 3 (PN3), 2020: Aimed at regulating opportunistic takeovers, especially from China, amid the pandemic. It amends the Foreign Exchange Management Act (FEMA) to ensure that countries sharing a land border with India require government approval for investments.
- FEMA: Primarily a foreign exchange law, it doubles as a regulatory framework for screening FDI but does not specifically address national security risks associated with such investments.
- Unlike countries like Canada and Australia, which have dedicated legal provisions, India’s FDI policy lacks clear guidelines on addressing national security threats from foreign investments.
- International Precedents:
- Canada’s Investment Act (Section 25): Empowers the government to screen and act against FDI deemed injurious to national security.
- During the pandemic, countries like Canada and Australia restricted Chinese FDI, doing so under laws designed to protect national security.
- India’s legal framework, under FEMA, lacks a specific clause for addressing security-related concerns in FDI.
- The Need for a Dedicated Legal Framework:
- The absence of a law explicitly tackling FDI-related security issues leaves a legal vacuum.
- India’s international trade treaties like the Bilateral Investment Treaty (BIT) address investment-related concerns but do not explicitly protect against FDI that may endanger national security.
- The Customs Tariff Act was invoked post-Pulwama attacks in 2019 to raise tariffs on Pakistani goods, using emergency powers. However, this is a reactive measure, not a preventive one specifically related to FDI.
- A robust legal framework similar to Canada’s Section 25 could enable India to better regulate FDI in sensitive sectors.
- Concerns with Chinese FDI:
- Increasing Chinese investment, especially in critical infrastructure, has been a cause of concern for national security.
- As noted during the pandemic, the risk of foreign control over key industries and sectors can have strategic implications.
- India’s current FDI framework treats FDI largely as an economic tool, with minimal regard for the security dimensions it might pose.
Conclusion:
India needs a dedicated legal framework to address national security risks from FDI and international trade. The absence of such a framework under current laws like FEMA creates vulnerabilities. A law similar to those in Canada or Australia, which empowers the government to act against FDI that could harm national security, should be considered. This would ensure that economic openness is balanced with national security needs.
Mains Practice Questions:
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1. Discuss the role of foreign direct investment (FDI) in India’s economic growth. In light of recent global developments, examine whether India needs a dedicated legal framework to address national security concerns related to FDI. (250 words)
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