Sunil Jain: Vote Manmohan

RATIONAL EXPECTATIONS

You have to hand it to the government. They haven't even figured out if the National Rural Employment Guarantee (NREG) Act is as afflicted by fraud as other government schemes are, and they go and work out the details of an even grander one, once again to help the country's dispossessed. The NREG is supposed to cost Rs 40,000 crore a year according to the original estimates, though I think the number can be more than three times this if all rural households, not just the poor, opt for it. The new scheme of pension and other benefits for the unorganised sector that Arjun Sengupta has just submitted his report on could cost a lot more.

The scheme is to cover 300 million workers in the unorganised sector and plans to give them up to Rs 15,000 in hospitalisation expenses each year, a maximum of Rs 1,000 per delivery, a life insurance cover of Rs 15,000, a personal accident cover giving Rs 25,000 in the case of death, a sickness allowance of Rs 750 in a year in case a worker is hospitalised, 5 per cent of the hospital bill as transport allowance in case the hospital is not reasonably closeby, a monthly pension of Rs 200 for the poor, and a provident fund that gives a guaranteed return of 10 per cent for the non-poor at a time when most banks are paying around half this for deposits. All this is to be funded by workers paying one rupee a day, with their employers and the government chipping in with similar amounts""in case there's no identifiable employer, the government will pay, as it also will for the poor. Of the Rs 1,095 collected per year per worker, Rs 150 will be given for insurance, Rs 380 for medical benefits and Rs 565 for pension benefits. By the end of the decade, the scheme will cost Rs 32,385 crore according to Sengupta, a figure that's a mere 0.5 per cent of GDP.

So far, so good, but can you imagine the logistical impossibility of keeping track of 300 million people, every day of the year, even as they migrate from one place to another, and collecting one rupee from each of them! Or the impossibility of collecting one rupee per day from individuals, entering this in their passbooks, sending the money to a central PF manager, and then delivering the benefits to each individual after 30 years of such contributions for pensions""the scheme is to be administered through 150,000 post offices across the country though the fact remains that less than half of these are departmental post offices and so entitled to deal in cash. And though post offices usually charge the government a 1 per cent fee for NSC collections, when the sums are tiny (one rupee a day), the costs could even go up to as high as 20 per cent. The scheme, however, assumes a maximum cost of 5 per cent of the original contributions.

And how do you provide life insurance or medical insurance (with surveyors checking each hospital bill) in a country where, in rural areas, just 5 per cent people have life insurance and another 0.5 per cent medical insurance?

Let's do a pilot project, Dr Manmohan Singh and Finance Minister P Chidambaram will tell us as they accept the report. Well, as Sengupta's report says on page 28, the NDA did do a pilot in 50 districts, of a scheme that was quite similar, and just 3,500 workers were enrolled under it. Enrolled doesn't mean they stayed with it throughout""just two people contributed every day till the scheme was wound up!

The other big problem with the project, if it does take off like the UPA plans, is the monumental cost of the guaranteed return of 10 per cent at a time when the Employees Provident Fund Organisation is struggling to pay an 8 per cent return, to a client base of just 2-3 crore. Ideally, the Sengupta panel should have got data on the age profile of the 300 million workforce, and seen what the annual outflow would be for the next 10-15 years""after all, the costs of all insurance, pensions and medical insurance differ for different age groups. But since this has not been done, and I haven't got the age profile, let's assume the average unorganised sector worker is 30 years old and will contribute to the PF for 30 years. Based on this, if Rs 565 is contributed each year and a 10 per cent return guaranteed, at the end of 30 years, the individual will have accumulated over Rs 1 lakh. The return on G-Secs, in contrast, is around 6.5 per cent. Use this return on the annual Rs 565 contribution, and the accumulated return after 30 years will be around Rs 52,000.

Multiply this extra return of Rs 50,000 per person by the 230 million non-poor workers who are to be covered by the scheme, and that's an additional burden of Rs 11,50,000 crore over 30 years! If you discount this by a 4 per cent inflation, that's an additional Rs 20,000 crore at today's prices.

If after all this, people still don't vote for Dr Singh, they're complete ingrates and don't deserve someone as caring as him.

suniljain@business-standard.com