Days before the Union budget was announced, Finance Minister Arun Jaitley had some unexpected guests at his North Block office. A delegation led by party president Amit Shah and comprising key leaders from BJP's national executive and state units met Jaitley to brief him on the findings of an internal survey, which looked at people's expectations from the first full-fledged budget of the Narendra Modi government.
In a country where the needs of the poor and the aged are often ignored, social security was the top priority, according to the survey. Jaitley was also apprised by Shah of the main theme for the budget: Sabka Saath, Sabka Vikas (Take everyone along and ensure all-round development). Jaitley lost no time in putting his officials to work on preparing the outline of three social security schemes.
And, on the day of the budget, Jaitley announced the schemes: Atal Pension Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana. The finer details, however, emerged two months later when the cabinet approved the government's spending on the schemes. Prime Minister Narendra Modi announced them as an extension of his Jan Dhan Yojana while visiting Kolkata on May 9.
The schemes, however, are facing criticism for reducing the spending on social security heads like health and education.
ATAL PENSION YOJANA
While the tradition of naming social security schemes after leaders is not something new, the government has made a smart move by naming the scheme after BJP's truly national and international icon Atal Bihari Vajpayee. But, unlike in the past, the government contributions may not be much.
Apart from the name, there is nothing new about the scheme. It is just a rehashed version of the old Swavalamban scheme under the National Pension System (NPS) that is already in place for a decade now.
Sources in the government say the scheme is different on one account: it would provide better clarity of future benefits to subscribers, that is, unorganised-sector workers who are not part of any social security schemes, but have a bank account.
The government has earmarked Rs2,000 crore for promotional and developmental activities for enrolment, contribution and collection under the scheme. It will also contribute 50 per cent of the subscriber's contribution or Rs1,000 per annum, whichever is lower, for five years to those who join the scheme between June 1 and December 31, 2015.
“While subscribers join the scheme between 18 to 40 years of age to receive a pension of Rs1,000 to Rs5,000 per month after 60 years of age, the pension amount may not be adequate and not everyone will see a benefit in this,” says Pankaj Mathpal, managing director of Optima Money Managers, a personal finance advisory firm.
The scheme has drawbacks, too. “Considering the government's contribution, the returns from this scheme work out at 7.35 per cent. This is sub par as under NPS itself, the average annual returns on government bond schemes is 9.09 per cent, for corporate bond scheme it is 10.65 per cent and for equity funds it is 13.25 per cent,” says Ajay Shah, a Mumbai-based personal finance adviser, who is consulted by top insurance companies. “Also, the cream of long-term savings by the unorganised sector workers will go to the insurance company providing annuity and not to the subscribers.”
Banks, which have been given a steep target of opening 40 crore accounts in the first year of the scheme, are encouraging account holders to open an account under the same. As per the budget, the government expense under the scheme could be anywhere between Rs2,520 crore and Rs10,000 crore, according to the cabinet note. “The fear of drawing penalties on missing out payments is a factor for unorganised workers who are signing up for the scheme. We have sent our feedbacks to the finance ministry,” said Rashesh Sharma, a bank manager in Delhi.
PRADHAN MANTRI JEEVAN JYOTI BIMA YOJANA AND PRADHAN MANTRI SURAKSHA BIMA YOJANA
These are the two flagship schemes for life insurance and accidental death insurance that were launched keeping the workers in the unorganised sector in mind. While the schemes are well-meaning, they have become a source of discomfort for the administrators.
Like in the pension scheme, the banks have been given a target, in this case two crore accounts, for the current fiscal. “Most of the zero-balance accounts opened under Jan Dhan scheme do not have even a single rupee,” says N.K. Kapoor, general manager (north India) of United Bank of India. “People open the account thinking that the government would put the money. We are hoping that the schemes would bring some funds for banks from new accountholders.”
The life insurance cover offered under the new scheme is for a basic annual premium of Rs330 up to age 55. To extend the cover till age 70, a nominal cover charge is taken. “Not covering natural death is a big drawback in this policy,” says V. Manickam, secretary general of Life Insurance Council. “The government should also reconsider doubling Rs1 lakh provided for disability of an eye or limb.”
An internal survey of the council has determined that most accountholders would like to stay off this policy as they are uncomfortable with the auto debit option, which is the only available mode for paying premiums. So, if you come across the single-page form for any of the two schemes at your bank, ask yourself first if the insurance cover would be adequate for you. A rule of thumb is that life insurance should be 10 times and accidental insurance five times your annual income.