Globalization, Demographic Transition and Reform of Social Safety Nets in India

1
Globalization, Demographic Transition and Reform
of Social Safety Nets in India

• By
• Mukul G. Asher, Professor
• and
• Deepa Vasudevan, Research Assistant
• LKY School of Public Policy
• National University of Singapore.

To be presented at the 2nd Global Labor Forum,
India Habitat Centre, December 13-14, 2005.
2
Organization

• Introduction
• Objectives of Social Security System
• A Framework
• Demographic Trends
• Overview of Indias Social Security System
• Reforming EPFO
• Reforming Civil Service Pension
• Concluding Remarks

3
I. Introduction/1

• Globalization is multi-faceted economic,
  political, social, and cultural.
• It is not a new phenomenon.
• It does not have a standard definition. In
  economic terms globalization may be broadly
  defined as the shrinkage of economic distances
  (i.e. ease with which each element of
  production-distribution-information-communication
  of the production and trade flows can be located
  over large geographical distances).
• Vastly increased financial and capital flows
  across borders.

4
Introduction/2

• Three broad factors constitute the current phase
  of globalization, which nearly all countries must
  manage reasonable well to sustain their standards
  of living.
• Advances in transportation, information and
  communication technologies, including the
  internet.
• Strong trend towards global/ regional/bilateral/u
  nilateral economic liberalization.
• Rebalancing of state-market mix towards the
  market and greater recognition of complementary
  roles each plays.

5
Introduction/3

• Another major characteristic of the current phase
  is that most countries have concluded that they
  need to manage globalization, and try to be net
  gainers from the process.
• Globalization has made safety nets essential for
  cushioning the burden of restructuring,
  increasing legitimacy of reforms, and for risk
  taking by individuals and firms by providing a
  floor level income in case of failure.

6
II. Objectives of Social Security System/1

• The core objectives of any social security system
  for both individuals and government is smoothing
  consumption over lifetime, insurance
  (particularly against longevity and inflation
  risks), income redistribution, and poverty
  relief.
• These have to be traded off against economic
  growth and labor market efficiency and
  flexibility.
• Individual, fiscal and societal affordability
  should be kept in mind in reforming social
  security system. This implies that benefits
  promised must evolve overtime as affordability
  grows.
• Expenditure on social security needs should be
  balanced against other needs, e.g. Health,
  education, infrastructure, etc.

7
Objectives of Social Security System/2

• Each country needs to think carefully about the
  system it wants based on its political economy,
  initial conditions, objectives and
  organizational, institutional, technical and
  financial capacities.
• From a systemic perspective, the system should be
  
• Adequate (both in terms of coverage and level of
  protection against various risks).
• Affordable (from individual, business, fiscal and
  macroeconomic perspectives)
• Sustainable ( should have tight strategy, but
  flexible implementation to financially sustain
  the system over a period of 70 years or more).
• Robust ( must be able to withstand macroeconomic
  and other shocks)
• Secondary Goals (actually consequences) lower
  distortion of labor force positive impact on
  financial capital markets.

8
Objectives of Social Security System/3

• As social security reform is a process which
  spans over a decade or more, sequencing is also
  important.
• Social security systems however must be
  sustainable for 60-70 years. So long term is
  particularly relevant.
• There has been considerable debate and experience
  with social security reform but no single idea,
  system or model has emerged even among Asian
  countries.

9
III. A Framework/1

• The World Banks five pillar model could be used
  to think about designing, implementing and
  reforming social security system which is
  applicable to the conditions and the context of a
  given country (Table 1).
• Different target groups will require different
  combinations of pillars
• Private management, investment allocation among
  wide variety of physical and financial assets,
  and international diversification may not be
  suitable for all countries
• Contextual aspects of each country are important
  in design and governance.

10
Table 1 Multi-Pillar Pension Taxonomy of the
World Bank
11
Table 1 Multi-Pillar Pension Taxonomy of the
World Bank

• Note The size of x or X characterizes the
  importance of each pillar for each target group.
• Source Holzmann R. et al. Old age income
  support in the 21st century the World Banks
  perspective on pension systems and reform,
  Washington DC The World Bank, May 2004 Draft
  (Processed).

12
A Framework/2

• Pillar 0 and 4 are new pillars as compared to
  1994 World Bank report.
• More importance is now given to family support
  and to physical assets (Pillar 4) and to tax
  financed redistributive pillar for lifetime poor
  (Pillar 0)
• There is also less insistence on private
  management of pension assets and recognition that
  accumulation of large assets is not always
  optimal.

13
A Framework/3

• It is however pertinent to point out that in many
  developing countries and transition economies,
  there will be lifetime poor and those who had
  served in armed forces and suffered disability
  who will require social assistance type of
  support (0 pillar in the WB framework)
• The above group may be as large as 30 of the
  elderly population.
• This is one of the ways in which the social
  security needs and the need for fiscal
  consolidation and flexibility are inter-related.

14
A Framework/4

• In any funded system there is an accumulation
  phase and a payout phase (Figure 1).
• Usually, the accumulation phase receives the most
  attention. Many policymakers believe that once
  the notional retirement age at which withdrawals
  (usually lump sum) can be made is attained, their
  responsibility is complete.

15
Figure 1 Accumulation and decumulation phases
of DC schemes Cumulative Balances
Accumulation Phase Decumulation phase


Working-phase Withdrawal Age Retirement
Period Cumulative Balances Net contributions
(contributions minus withdrawals), plus interest
credited on accumulated balances. Decumulation
phase the funds accumulated can be spent rapidly
or slowly. Death may occur before the funds are
exhausted or reverse is also a possibility. So
need to protect against longevity risk. As it is
the purchasing power of the funds that is
relevant, protection against the inflation risk
is also desirable. Source Author
16
IV. Demographic Trends/1

• Three major demographic trends are apparent1.
  Fertility Rates are dropping nearly
  everywhere2. Life Expectancy is rising in
  many, though not all parts of the world
• (in some sub-groups such as professionals in
  Shanghai, life expectancy is actually falling and
  is below national average. This has important
  implications for actuarial projections and
  pricing of pension products. It would be
  interesting to do a similar study of IT
  professionals in Vietnam)
• 3. Developed countries are well advanced with
  respect to the above two trends, reflected in
  their declining share in world population. The
  non-developed countries are farther behind,
  though variation among them is large.

17
Demographic Trends/2
Ageing Factoids

• 59 of worlds elderly (249 million) lived in
  developing countries in 2000 this will increase
  to 71 (686 million) by 2030.
• Most of the growth will take place in developing
  countries, over half of it in Asia and more than
  a quarter in China alone.
• The problem in the developing countries will not
  be just the level of elderly population but the
  rapid pace of ageing.
• Many developing countries will have an old
  demographic profile at much lower level of per
  capita income than the industrial countries.

18
Table 2 Population Aging in Selected Countries
19
Table 2 Population Aging in Selected Countries

• a data for 1999
• b 2.63 million or 60 were females. So gender
  issue will need to be addressed. Early retirement
  age for women will mean larger need for
  retirement resources.

20
Fig 2 Proportion of Elderly in Population
Source An Aging World, 2001, US Census Bureau
21
Fig 3 Life Expectancy at age 60 Selected Asian
Countries
Source Adapted from Chakraborty (2004)
22
Demographic Trends/3
Implications for India

• In 2030, 9 of Indias population, or nearly 130
  million people, will be over 65 years of age. The
  population over 60 years of age will approach 200
  million in that period
• By 2030, 237 million people, or 16 of Chinas
  population will be over 65 years of age
• The vast numbers of elderly adds a human
  dimension and imposes a significant
  responsibility on the part of those who are
  involved in managing retirement funds and systems
• How Asia addresses the challenge will largely
  determine how the world will cope with ageing

23
Fig 4 Life Expectancy at age 60 Selected Asian
Countries
Source Adapted from Chakraborty (2004)
24
Demographic Trends/4

• Share of working age population will decline in
  Asia in the future. This will mean that the
  demographic gift that southeast Asia and China
  has enjoyed, will become a demographic burden
  within the next two decades.
• Figure 5 shows the turning point in working age
  population for selected countries
• As Figure 5 shows, India is entering demographic
  gift phase. The challenge will be to actually
  translate this gift into competitive advantage
  as Southeast Asia and China have done

25
Figure 5
Source World Economic Outlook, IMF, September
2004
26
V. Overview of Indias Social Security System/1

• Figure 6 provides an overview of India's social
  security system. It has 6 components and each
  component has several elements.
• Two key requirements
• Professionalism in design and management of
  provident and pension funds in each of the
  components much more progress is needed in this
  area to benefit all the stakeholders
• Systemic perspective Currently each component is
  functioning separately. There is a need to adopt
  a systemic perspective.
• This presentation focuses on reforming EPFO and
  Civil service pensions.

27
(No Transcript)
28
VI. Reforming EPFO/1

• Key challenge
• to provide quality of service and retirement
  income security commensurate the costs imposed on
  the economy.
• Time to ask can India afford the EPFO in its
  current form?

29
Reforming EPFO/2

• OVERVIEW
• Largest provider of retirement income in the
  non-government organized sector
• EPFO administers three schemes Employees
  Provident Fund (EPF), Employees Pension Scheme
  (EPS) and Employees Deposit Linked Insurance
  (EDLI) TABLE 3
• Total contributions are 25.66 of basic salary
  plus DA plus certain allowances. The
  administrative costs are charged separately.
• The EPFO thus imposes large costs on the
  members, as its rates are higher than the
  international norms of between 10-20.

30
Table 3 Overview of Schemes under the EPFO
Source- Asher and Vasudevan (2006) forthcoming
31
Reforming EPFO/3

• firms with twenty or more employees in 181
  designated industries are required to be
  registered with the EPFO
• Those beginning their work careers at wages above
  Rs. 6500 per month are not required to join the
  EPFO.
• Companies can be exempt from participating in
  EPFOs schemes if it is proven that the employees
  of these establishments enjoy the benefits of
  provident funds set up through an independent
  trust. Such exempt trusts are privately
  managed, but are under the overall supervision of
  the EPFO.

32
Reforming EPFO/4

• As at end-March 2003, after more than 50 years of
  operations , EPFO covered Only 344,508
  establishments, less than Malaysia with a
  population of only 22 million.
• The EPFO has not focused on enhancing its
  organizational capacities to cover beyond 181
  industries specified( such specifications reflect
  a static mindset inconsistent with India's
  current vision of becoming a major economic
  power), and covering establishments employing
  less than 20 workers.

33
Reforming EPFO/5

• The provident fund scheme and the pension fund
  scheme in 2003 had 39.5 million and 27.5 million
  members respectively.
• The active contributors however are less than
  half for the EPF scheme. The active membership
  represents only about 5 of India's labour force.
• This figure alone demonstrates the extent to
  which EPFO has become marginal in providing
  retirement income security to India's labour
  force. Its claims for representing India's work
  force are therefore unwarranted.

34
Reforming EPFO/6

• The outcome of the EPFO policies and practices is
  reflected in the balances of the members shown in
  table 4.
• The balance of the member is not only low, but
  16 members account for 84 of the balances.
• This suggests that any interest subsidy to EPFO
  members accrues to those in the higher wage
  groups.
• Characteristically the EPFO does not publish such
  data on a regular basis. It should be required to
  do so.

35
Table 4 Members Balances in the EPF
Source EPFO, Computed from Sridhar(2004)
36
Reforming EPFO/7

• GOVERNANCE STRUCTURE.
• EPFO is governed by a Board of Trustees, headed
  by the Union Minister of Labour
• Administrative and policy matters are under the
  control of the Central Provident Fund
  Commissioner, who is the Chief Executive Officer
  of EPFO.
• Thus, while the Board has a bureaucrat at its
  head, a political appointment has the final
  authority on all critical policy decisions.

37
Reforming EPFO/8

• The current structure of the Board is tripartite
  with representatives from the government,
  employers and employees
• The Central government appoints 20 members (5
  from the Central government and 15 from the state
  governments)
• 10 persons each representing the employers and
  employees respectively appointed by the Central
  government
• Chairman (Minister of Labor) and Vice-Chairman
  are also appointed by the Central government.
• The Central Provident Fund Commissioner as
  ex-officio member

38
Reforming EPFO/9
Governance issues in existing system

• The Board consists of 45 members, which is an
  unwieldy size
• All members are appointed by the Central
  Government
• There is no provision for inducting independent
  experts, even on a temporary or rotating basis
• Unlike SEBI or IRDA, there are no committees with
  specialized professionals to advise on policies,
  investments, and administration.
• The current EPFO board structure is ill-equipped
  to deal with complexities of core Provident and
  Pension funds tasks in both investment and non-
  investment areas.

39
Reforming EPFO/10
SUGGESTIONS

• Board can improve the diversity of views and
  hence quality of decision-making by ensuring that
  not all members are centrally appointed.
• The international trend is towards to appointing
  professionals as chair persons of the national
  provident fund rather than a politician. India
  should seriously consider its practice of the
  Minster of labour being the chairperson of EPFO.
• Short run time horizon of political decision
  making is inconsistent with the long term
  financial contact in administering retirement
  security schemes
• By including independent experts, the Board can
  gain access to new developments and ideas in the
  retirement financing industry

40
Reforming EPFO/11

• EPFO is both a service provider and a regulator
  of the provident and pension funds market. This
  dual function in one organization is contrary to
  good governance practices.
• This not only creates conflict of interest , as
  EPFO a service provider should not be involved in
  deciding who is exempt and how such funds should
  be run. It has no regulatory capacity and yet the
  administrative cost at 4.4 of the contributions,
  it levies on exempt funds are high.

41
Reforming EPFO/12

• SCHEME DESIGN
• Modernize laws and regulations.
• The EPFO act, 1952 and its subsequent amendments
  are not in conformity with the complexity of
  India's economy, and dynamics of its labour
  market. Indias overwhelming task is to create
  more jobs to take advantage of the demographic
  gift phase, but EPFOs mindset is traditional ,
  long term employee-employer relationships, which
  are becoming less of a norm.

42
Reforming EPFO/13

• There are many examples where current regulations
  and their administration are counter- productive.
  
• Because of organizational inefficiencies , there
  are large suspense accounts, funds i.e. where
  contributions have not been credited to any
  individuals accounts.
• The transaction processing efficiency is
  particularly low.
• EPFO has large number for withdrawal schemes for
  healthcare and housing purposes, which has made
  it almost like a bank, increasing staff load and
  reducing the retirement benefits which can be
  obtained. ( table 3)

43
Reforming EPFO/14

• This is exasperated by the requirements that the
  exempt funds must pay at least the same interest
  rate as the EPFO.
• EPFO is unable to administer efficiently when
  there is significant labour mobility ,
  particularly with respect to temporary and
  contract workers whose role has been growing.
• some individuals are able to withdraw full
  amounts when they change jobs, defeating the
  purpose of retirement savings others lose their
  balances due to inefficiencies of the EPFO when
  they change jobs.
• Job creation, among the highest Indian priority,
  is hampered when temporary workers and other
  accounts are not efficiently administered.

44
Reforming EPFO/15

• The EPS scheme is badly designed , as It defines
  both the benefits and the contributions . This is
  mathematically impossible.
• Given nearly Rs.20,000 crore actuarial deficit in
  the EPS and given that the scheme requires a 70
  year time horizon of financial sustainability, it
  should be drastically overhauled with benefits
  brought in line , with assets ( Asset liability
  matching over a 70 year period should be
  practiced).
• The alternative would be to close the scheme and
  pay the accrued benefits.

45
Table 5 Withdrawals from the EPF
Source- Asher and Vasudevan (2006) forthcoming
46
Reforming EPFO/16

• NON- INVESTMENT RELATED CORE FUNCTIONS
• These are the four non-investment related core
  functions of Pension and Provident fund
  organizations.
• 1) Reliable collection of contribution/taxes, and
  other receipts.
• 2) Payment of benefits for each of the schemes in
  a correct way without any side-payments. In case
  of pre-retirement loans, ensuring their timely
  repayment
• 3)Maintaining an effective communication network,
  including development of accurate data and record
  keeping mechanisms to support collection, payment
  and financial activities.
• 4) Production of timely and policy relevant
  financial statements and reports.
• The importance of this function cannot be over
  emphasized
• As on March 31, 2003, the activities of EPFO were
  carried out through a network of 21regional
  offices, 87 sub-regional offices, and 163
  district-level offices. Collectively, staff
  strength of EPFO amounted to 19329 persons on
  that date.

47
Reforming EPFO/17

• Key areas for improvement
• Accounting system move accrual and double entry
  system.
• Providing unique Identification number to
  members.
• Connectivity among its officers across the
  country.
• Treasury management expertise.

48
Reforming EPFO/18

• Human resource development policies (staff
  must have requisite computer literacy, management
  must have skills for generating and implementing
  financial management systems and the
  organization must have mindset which accepts the
  goal of EPFO as a world-class service provider).
• EPFOs annual report is neither widely accessible
  nor sufficiently informative. It should be
  benchmarked against such reports by countries
  like Malaysia.
• EPFO should have an interactive website that
  reflects India's skills in the IT sector. All
  circulars and forms should be online.

49
Reforming EPFO/19

• Table 6 provides operational indicators of EPFO ,
  while table 7 provides administrative efficiency
  indicators for 2 national provident funds i.e. of
  Malaysia and Singapore which are regarded as
  reaching a high degree of administrative and
  compliance efficiency.

50
Table 6 EPFO Operational Statistics
Source- Asher and Vasudevan (2006) forthcoming
51
Table 7 indicators of Administrative Efficiency
in Malaysia and Singapore, 2004
Source- Asher and Vasudevan (2006) forthcoming
52
Reforming EPFO/20
Investment policies and management

• On March 31, 2003, the EPFO held investments
  worth Rs.1,51,278 crore under its three schemes,
  equivalent to 6 of Indias Gross Domestic
  Product.
• Almost two-thirds of this corpus (64) was
  directly under EPFOs management, and the
  remaining was managed by private exempt provident
  funds.
• Investment management is outsourced by the EPFO
  to the State Bank of India
• Funds available with the EPFO are invested in
  accordance with guidelines prescribed by the
  Government of India. Exempt establishments are
  also required to follow the prescribed investment
  pattern

53
Reforming EPFO/21

• There are two sets of guidelines , one by
  ministry of labour 2003 and the other by ministry
  of finance, 2005. The IRDA also has investment
  guidelines for the pension corpus of the life
  insurance companies that it regulates.
• The IRDA guidelines are consistent with modern
  financial principles and practices.
• Ministry of finance has allowed a small
  percentage to be invested in equities through
  mutual funds, while ministry of labour guidelines
  permit primarily public sector debt, with no
  equities. It is therefore the list in tune with
  India sophistication of financial and capital
  markets.

54
Reforming EPFO/22

• Moreover the ministry of labour and EPFO do not
  even permit the exempt funds to follow
  internationally accepted investment policies ,
  permitting asset diversification, but with strong
  regulation. (table 8)
• This hampers the vision of India becoming an
  important regional financial center and using its
  relatively more developed financial and capital
  markets as a competitive tool against other
  countries such as China.

55
Reforming EPFO/23

• Table 8 Investment Guidelines for Provident
  Funds

56
Reforming EPFO/24

• Actual investment by EPFO At end-March 2003, 80
  of the EPFOs Provident Fund corpus was invested
  in Special Deposit Schemes of the government and
  the remaining locked into central and state
  government securities and bonds of public
  financial institutions and PSUs
• Interest rate paid by the EPFO is administered,
  and has no link with return earned on its
  investments, or market rates
• Figure 7 shows the gap between yield on
  government securities and interest rate paid by
  the EPFO. The shortfall is funded from reserves
  or subsidized by the government

57
Reforming EPFO/25
Source- Asher and Vasudevan (2006) forthcoming
58
Reforming EPFO/26
Investment Strategies

• Investment Strategy is Passive Investments are
  made on a buy and hold basis
• Re-investment risk
• EPFO liabilities are very long-term its assets
  are relatively short-term. This mismatch is
  managed by repeatedly rolling over investment
  thus exposing the fund to the risk that
  re-invested proceeds might earn a lower interest
  rate. As Fig 1 shows, interest rates have fallen
  continuously in the last decade, exposing EPFO to
  a high degree of re-investment risk
• No Transparency
• Investments are valued at cost. Since there is
  no mark-to-market valuation, opportunity losses
  and gains cannot be measured by contributors

59
Reforming EPFO/27

• Lost opportunities of booking capital gains
• By imposing total restrictions on sales, EPFO has
  lost the opportunity to make capital gains on its
  portfolio of government bonds in a falling
  interest rate scenario (rates on government
  borrowing have fallen by over 500 basis points in
  the last few years)

60
Reforming EPFO/28

• Loss of profits from equity premium
• By holding an all-debt portfolio, EPFO has lost
  the benefit of higher returns from equity
• Using a simple numerical simulation, it can be
  shown that terminal wealth in a portfolio
  consisting of 80 debt and 20 equity, will be
  twice the wealth accumulated under an
  all-government debt portfolio (Table 9) even if
  no trading is permitted

61
EPFO/29

• Table 9
• Terminal wealth for annual PF contribution of
  Rs.15.67
• (Rs.12 from employee, Rs.3.67 from employer)

Assumptions 30 year working life real wage
growth of 3 per year equity premium of 7
following Shah(2003)
62
Reforming EPFO/30

• Exempt Funds potentially more efficient ( with
  some exceptions)
• In 2002-03, over 10 of exempt provident funds
  paid a higher interest rate than the minimum
  administered rate prescribed by the EPFO
• Simply assuming that these funds consistently pay
  0.5 over the funds directly managed by EPFO,
  terminal wealth would increase substantially
  (Table 10)

63
Reforming EPFO/31

• Table 10
• Terminal wealth for annual PF contribution of
  Rs.15.67
• (Rs.12 from employee, Rs.3.67 from employer)

Assumptions 30 year working life real wage
growth of 3 per year
64
Reforming EPFO/32
Accountability

• The EPFO has almost 20,000 staff, but no treasury
  department, or investment professionals. Who
  will be held accountable for its fund
  mismanagement?
• Poor disclosure and valuation at cost implies
  that inefficiencies are not widely known and
  taken note of. As custodian of savings of the
  public, is it not EPFOs responsibility to make
  its operations more transparent? Is EPFO not
  accountable to its contributors?

65
EPFO Summary

• A mindset change is needed with appropriate
  leadership to transform EPFO from an employer
  focused to employee focused organization.
• The EPFO should aim to become a world class
  service provider for its members and acquire
  investment management capabilities.

66
VII. Reforming Civil Service Pensions/1

• Traditionally, Central Government has provided
  the lead in social security system management.
• As shown in Figure 6, the civil servants are
  provided with non-contributory, defined benefit,
  price (and wage) indexed pensions, with generous
  commutation benefits linked to earlier mortality
  tables, and family pensions.
• Increasingly the fiscal burden of these pensions
  is being felt by specially the state governments,
  and also by the Centre.
• Political economy has prevented reforms in design
  and other aspects of the current pension system.

67
Reforming Civil Service Pensions/2

• In January 2004, the government decided on a long
  period of slow transition to a mandatory New
  Pension Scheme (NPS) for new entrants to civil
  service. So far 14 states have indicated their
  willingness to introduce similar reforms.
• The NPS has provisions for voluntary membership
  by others. Even those that are mandated can
  voluntarily contribute additional amounts.
• This has made reform politically more acceptable,
  but the trade-off was that full impact will not
  be evident for at least three decades
• An interim Pension Fund Regulatory and
  Development Agency (PFRDA) was also set up
• The PFRDA Bill is proposed to be introduced in
  the winter 2005 session of the Parliament.

68
Reforming Civil Service Pensions/3

• Main Features of NPS
• A shift from DB to DC method (10 by
  employer-employee each, with no wage ceiling)
• No pre-retirement withdrawals to realize the
  power of compound interest
• So long-term contractual savings expected to
  increase rapidly (some estimates suggest that
  pension assets could be around 50 of GDP by
  2025, from current levels of about 25)
• Mandatory annuatization at retirement for part of
  the accumulated balances
• Focus on minimizing transaction costs
• FDI in pensions sector to be permitted but its
  extent is yet to be decided.

69
Reforming Civil Service Pensions/4

• Lack of survivors and disability insurance
  (PFRDA can add them at their discretion)
• Limited investment choices to individuals but
  possibility of asset class diversification.
• Lessening of duality in pension arrangement
  between public and private sectors
• Considerable knowledge-base is being used (and
  created) in implementing NPS and PFRDA. This may
  assist wider adoption of evidence-based and more
  flexible policies

70
Reforming Civil Service Pensions/5

• Longevity risk addressed through annuities,
  though inflation risk not addressed
• Fiscal savings will be a slow process
  encompassing at least three decades.
• Urgent efforts needed to have more states adopt
  such a system, albeit after careful planning and
  preparation

71
Reforming Civil Service Pensions/6

• Other Reform Trends
• Private sector superannuation funds have been
  pro-active and are now benchmarking their Human
  Resources Management (HRM) practices against
  international norms. This is in response to
  Indian firms themselves aspiring to have
  regional/global presence

72
Reforming Civil Service Pensions/7

• The annuity market is also expected to develop in
  a more professional manner as there are now
  number of life insurance companies in this market
• Supply of investment quality assets, both debt
  and equity, is increasing. International
  investments of pension assets will enhance risk
  diversification, and give impetus to financial
  and capital market development (Indias current
  market capitalization is around US400 billion)
• Increased competition, and other aspects noted
  above, will impact positively on the dynamics of
  pension reform

73
Concluding Remarks

• India has a combination of demographic advantage
  and rapid ageing of the population.
• Social Security Reform should be a high priority
  for India
• Professionalism and systemic perspective are
  needed.
• Strong regulation and supervision are essential
  and these can only be provided by the government.