EPFO has clearly been put on notice during the last 5 years. The work on the New Pension System (NPS) had gathered steam in 2003. This was also the period (2001-2003) when EPFO went into a major rethink about doing something to justify its existence in an economy where interest rates were diving south, GOI did not want to subsidise the returns, failure to embrace technology had exposed EPFO of its inability to provide efficient and accurate record keeping and the customer was getting used to higher returns by mutual funds ( even schemes which were predominantly invested in debt). True - their long term performance was not yet tested.
Now the NPS - with private fund managers, multiple investment options, individual accounts based on unique member account and low transactions cost is expected to take off in 2008. While NPS does not cross roads with EPFO today as it is only for government employees (that too only new joinees since January 1 2004) - it might be a mistake for EPFO to believe that its 8.5% assured returns will ensure its appeal.
The formal private sector employees today do not have an option. In a few years - on the ground comparisons between NPS and EPFO would be inevitable. I have an article today in the Indian Express: Time to pension off the EPFO (pasted below)
Indian Express, Monday, July 30, 2007
As always, the Employees Provident Fund Organisation’s extended annual ritual to decide the EPF interest rate has deflected attention from the core issues. The only reason for the EPFO to exist is to provide optimum retirement benefits to its members. For this, it needs to maximise returns under the Employees Provident Fund and improve its ability to meet its commitments under the Employees Pension Scheme (EPS). While the EPFO board was passionately fighting to obtain the 8.5 per cent rate for 2006-07, mutual funds delivered a return of over 16 per cent last year (the fact that the 16% returns referred to only balanced funds with majority of assets in debt - got edited out in the print edition! - Equity oriented funds delivered over 30% returns). Though it is difficult to fault the concerns that the board harbours for its constituencies, its energies are directed at the wrong end of the stick.
As things stand, even if EPFO somehow managed to earn a 15 per cent return, would it really matter? EPFO’s data for the year 2000-01 reveals that nearly 85 per cent of accounts have a balance of less than Rs 20,000. This implies that many low-income workers are using EPFO as an umbrella savings scheme rather than a retirement plan. While bank credit is more easily available today, members are continuing to dip into EPF, implying that irrespective of whether the returns are 9.5 or 8.5 per cent, they are consigned to very low replacements. Subsidised returns will mainly benefit the higher income workers covered by EPFO — the 15 per cent who own over 80 per cent of the assets. The unions are fighting for rich workers.
So do we need EPFO? EPFO has been unable to fulfil its basic purposes. Consultants have been hired but the all too obvious recommendations — making withdrawal stricter and improving investment parameters, among others — have been politically queasy and remain unimplemented. Globally, the inability of retirement savings funds to offer assured returns have been realised, and the expectations have shifted to competitive fund management to offer the best possible returns. India has the best fund management capacity in the world. Late last year, the Coal Mines Provident Fund Organisation auctioned the fund management of its assets of Rs 20,000 crore to ICICI Securities.
The issue is not the interest rate. It is the lack of political will to reform EPFO. Other than the administrative overhaul, which has been ticking at a slow pace since 2003, no concrete action has been taken. Increasingly, the EPFO is resembling the BCCI — lots of meetings and noise, but no hard decisions. This year the EPFO trustees met seven times before they decided on 8.5 per cent returns, even though the Fund earned less. Contrast this with the EPFO in Nepal, which has slashed the rate of return from 11 per cent in 1998 to 5.25 per cent at present to make sure what it was paying was in sync with its earnings.
The labour ministry and EPFO board continue to sit on the finance ministry’s revised investment norms which could allow the EPFO to invest 10 per cent in equity-linked mutual funds and 5 per cent directly into equities. The finance ministry had relaxed the norms in January 2005. The trustees are not in favour of investing in corporate bonds. While EPFO continues to dither, the Pension Fund Regulatory and Development Authority is setting up the New Pension System for government employees based on competitive fund management and multiple investment options for members. In the case of EPFO, ordinary citizens continue to be dragged into this scheme due to its mandatory nature. Why shouldn’t an employee in the private sector have the option to switch his EPF money to the New Pension System, which offers the prospect of better investment management, therefore higher returns?
EPFO today is literally scraping the barrel to pay the returns it decides every year. On the pension front, EPFO has been unable to carry out much-needed corrections, as it waits for its trustees to arrive at a consensus. In the 1980s, most countries realised the dangers of defined benefit pension schemes, and by the mid-1990’s most had moved to the defined contribution system. But India set up the EPS as a DB in 1995. Within a decade, the estimated unfunded liability of the EPS rose from Rs 43 crore in 2001 to Rs 22,000 crore in 2004-05. With improved mortality and unpredictable interest rates, this number may increase further in the future.
The government can no longer hide behind the fig leaf that the EPFO’s board of trustees has not reached a consensus on major policy reforms.
Monday, July 30, 2007
Tuesday, June 12, 2007
Reservations: Diminishing returns for politicians
The Gujjar vs Meenas stand off is probably a good outcome as it puts the politician too at a risk. Suddenly the reservation pie has become so attractive that every other caste could cue up to be counted as backward. If the government tries to woo them, they face the backlash of those who will have to share the pie and if they don't, they face the ire of those demanding inclusion. The rich in the general caste are fuming anyway and the poor among the general caste -- they would never forgive the politicians for sealing their fate forever.
Keep the spirit of free competition aside for a moment. Also step aside the debate on the number of OBCs and assume that they do comprise 50 per cent of the population. Take the combined SC and ST numbers at a widely agreed 25 per cent. Effectively, 75 per cent of the country comprises of backward caste. Does this justify 50 per cent reservation?
India has a working population of about 450 million. There are about 25 million government jobs and about 10 million in formal private sector. Let us include the Prime minister's suggestion of job reservation in the private sector. Take the total formal jobs at a generous 45 million. As we do not have data on vacancies and people looking for jobs – take a macro view -- 45 million such jobs for 450 million workers. Now lets hike the reservation in jobs to 75 per cent from 50 per cent!
This will result in about 337 million backward caste people competing for 33 million reserved jobs. On the other hand, 110 million general caste workers would fight for 12 million unreserved jobs.
The top 10 per cent (33 million) of backward castes will grab the 33 million reserved jobs, right? These will mostly be the rich and resourceful among the backward castes. The government has been categorical that it does not wish to exclude the rich among the backward castes from reservations. Therefore, even 75 per cent reservations will not help the really backward.
The situation would be similar for reservations in higher education. If there were enough seats in colleges, IITs and IIMs and if there were 50 million jobs in formal private sector then reservation would not be an issue, right? But that is a problem that the government has failed to put on its agenda.
Lets try again. So what if reservations do not really benefit the backward? No harm in trying. Ok. The recent Gujjars vs Meenas standoff stands out as a new brand of divisive violence. Gujjars staking claim as backward and downtrodden while Meenas (already categorised as ST) fighting to ensure that they did not have to share the benefits. We have now managed to divide the country further by adding lowercaste vs lower caste to the upper caste vs lower caste battle.
What stops political parties or some leaders of specific castes from luring communities with the promise of getting them an ST, SC or OBC tag for votes? Nothing. The outcome - riots and caste wars. The argument of reservation can be extended to any field - sports, arts, defence etc. Why not have 50 per cent reservations for women?
How will the government evaluate the presumed benefits of reservations? Imagine the riots Meenas would create if it were ever to be suggested that they no longer needed reservations! Caste cannot be a proxy for backwardness as caste is fixed by birth. An OBC, once labeled so will remain so. The 1931 census shows 75 per cent of the population as backward and after 75 years we still use the same numbers!
How many caste has the government notified as being no longer backward till date? Note even one? Will it be able to do so in the next 50 years? Based on caste, will 75 per cent of Indians be always backward?
Seventy five per cent of the population is very large vote bank. The government had hiked the reservation levels in government jobs to 49.5 per cent from 22.5 per cent in 1990. This was based on Mandal Commission's recommendation which used data from 1931 census. Mandal labeled 3,743 caste and communities as OBCs which accounted for 54 per cent of population. There were serious questions about this list as it was argued that same castes were included two or more times by changing the spelling or by including an SC or ST caste in the OBC list.
LR Naik, the only Dalit member of the commission refused to sign the recommendations as he feared that upper class OBCs would corner all the benefits. The quota could have been higher but the Supreme Court had capped total reservations to 49.5 per cent.
Seventeen years have passed and the politicians have now turned to extend the reservation in higher education to 49.5 per cent from 22.5 per cent. It is now toying with the idea of reservations in private sector jobs. With even backward castes now set fight to fight among themselves the politicians might as well reassess the potential political gains. For a start, any numbers on the castes which could potentially react the way the Gujjars did?
Keep the spirit of free competition aside for a moment. Also step aside the debate on the number of OBCs and assume that they do comprise 50 per cent of the population. Take the combined SC and ST numbers at a widely agreed 25 per cent. Effectively, 75 per cent of the country comprises of backward caste. Does this justify 50 per cent reservation?
India has a working population of about 450 million. There are about 25 million government jobs and about 10 million in formal private sector. Let us include the Prime minister's suggestion of job reservation in the private sector. Take the total formal jobs at a generous 45 million. As we do not have data on vacancies and people looking for jobs – take a macro view -- 45 million such jobs for 450 million workers. Now lets hike the reservation in jobs to 75 per cent from 50 per cent!
This will result in about 337 million backward caste people competing for 33 million reserved jobs. On the other hand, 110 million general caste workers would fight for 12 million unreserved jobs.
The top 10 per cent (33 million) of backward castes will grab the 33 million reserved jobs, right? These will mostly be the rich and resourceful among the backward castes. The government has been categorical that it does not wish to exclude the rich among the backward castes from reservations. Therefore, even 75 per cent reservations will not help the really backward.
The situation would be similar for reservations in higher education. If there were enough seats in colleges, IITs and IIMs and if there were 50 million jobs in formal private sector then reservation would not be an issue, right? But that is a problem that the government has failed to put on its agenda.
Lets try again. So what if reservations do not really benefit the backward? No harm in trying. Ok. The recent Gujjars vs Meenas standoff stands out as a new brand of divisive violence. Gujjars staking claim as backward and downtrodden while Meenas (already categorised as ST) fighting to ensure that they did not have to share the benefits. We have now managed to divide the country further by adding lowercaste vs lower caste to the upper caste vs lower caste battle.
What stops political parties or some leaders of specific castes from luring communities with the promise of getting them an ST, SC or OBC tag for votes? Nothing. The outcome - riots and caste wars. The argument of reservation can be extended to any field - sports, arts, defence etc. Why not have 50 per cent reservations for women?
How will the government evaluate the presumed benefits of reservations? Imagine the riots Meenas would create if it were ever to be suggested that they no longer needed reservations! Caste cannot be a proxy for backwardness as caste is fixed by birth. An OBC, once labeled so will remain so. The 1931 census shows 75 per cent of the population as backward and after 75 years we still use the same numbers!
How many caste has the government notified as being no longer backward till date? Note even one? Will it be able to do so in the next 50 years? Based on caste, will 75 per cent of Indians be always backward?
Seventy five per cent of the population is very large vote bank. The government had hiked the reservation levels in government jobs to 49.5 per cent from 22.5 per cent in 1990. This was based on Mandal Commission's recommendation which used data from 1931 census. Mandal labeled 3,743 caste and communities as OBCs which accounted for 54 per cent of population. There were serious questions about this list as it was argued that same castes were included two or more times by changing the spelling or by including an SC or ST caste in the OBC list.
LR Naik, the only Dalit member of the commission refused to sign the recommendations as he feared that upper class OBCs would corner all the benefits. The quota could have been higher but the Supreme Court had capped total reservations to 49.5 per cent.
Seventeen years have passed and the politicians have now turned to extend the reservation in higher education to 49.5 per cent from 22.5 per cent. It is now toying with the idea of reservations in private sector jobs. With even backward castes now set fight to fight among themselves the politicians might as well reassess the potential political gains. For a start, any numbers on the castes which could potentially react the way the Gujjars did?
Saturday, March 31, 2007
Pension funds management cost under NPS can be extremely low
For everyone used to the charges levied by Mutual Funds and Insurance Companies.. the notion that fund management cost can be as low as 0.01% seems farfetched. The reality is just the opposite.
Bulk fund management, with relativly well defined investment parametes and riddance from the task (and the cost) of managing distribution and large retail customers can do just that.
To think of it - all you need is a good fund manager and a small office - lets throw in some staff.. at 0.05% of even Rs 2000 crore - thats Rs 1 crore! Firms like ICICI securities and SBI think this model works..
Coal Mines Provident Fund (CMPFO) auctioned its fund of Rs 20,000 crore at .01% to them just a few months ago... New Pension System (NPS) can drive similar bargains..how is this feasible... you may read my article Don`t compare mutual funds with pension plans in Business Standard today.
Bulk fund management, with relativly well defined investment parametes and riddance from the task (and the cost) of managing distribution and large retail customers can do just that.
To think of it - all you need is a good fund manager and a small office - lets throw in some staff.. at 0.05% of even Rs 2000 crore - thats Rs 1 crore! Firms like ICICI securities and SBI think this model works..
Coal Mines Provident Fund (CMPFO) auctioned its fund of Rs 20,000 crore at .01% to them just a few months ago... New Pension System (NPS) can drive similar bargains..how is this feasible... you may read my article Don`t compare mutual funds with pension plans in Business Standard today.
Tuesday, March 27, 2007
Will SC ask BCCI why it shd not be dissolved?
You would expect the cricket board in India which was set up in 1929 to have a website? Well! there is none. Netizens have split their hairs to find it. Not having a website just mirrors the callous and opaque manner in which BCCI has handled cricket.
Lets say for a moment that BCCI cannot solely be judged based on what the team does on the field. So how does the board fare when compared to other cricket boards, especially the Australian Cricket Board (ACB)?
ACB is run by a team of 13 directors who are appointed by 6 State associations. A quick look at the profile of each of them reveals that all of them are former cricketers. While some have played for Australia or a State, the rest, barring one, have at least played at a university and club level. The one exception is a senior doctor. ACB has approximately 60 full-time staff to run the operations. However, the responsibility for implementing the strategic plan and managing Cricket Australia's operating activities rests with the Chief Executive Officer and Senior Management Team. The work is divided into six operational areas with clear roles and responsibilities.
To find out what BCCI is upto – one can only look at the outcomes as there is no information on what it is actually doing ( just to repeat – there is not even a website!). A quick search on Wikipedia reveals that it is just a society registered under the Tamil Nadu Societies Registration Act. Therefore, it is unlikely to be covered under the Right to Information Act. So even that remedy seems to be lost.
At the same time, BCCI enjoys tax exemptions and other benefits such as use of Indian police officers for free and often uses government-owned stadiums across the country at a nominal annual rent.It has the authority to select players, umpires and officials to represent the country in international events and exercises total control over them. Without its recognition, no competitive cricket involving BCCI-contracted Indian players can be hosted within or outside the country.
It is a documented fact that it is the richest cricketing board in the world - just to illustrate - the global media rights for international cricket to be held in India between March 2006 and March 2010 were reported to have been awarded to production house Nimbus for a mind-boggling sum of US $612 Million.
BCCI is not only bankrupt when it comes to vision and execution but it also seems to have other exciting stuff of its own to take care of. For instance, the legality of the office-bearer's election at the board's annual general meeting (AGM) held on September 29, 2004 itself is subjudice.
At the cost of this becoming a piece to generally trash BCCI - what is no excuse for the fact that the board has not invested in institutional capacity in which the game can thrive. Why else can team like Bangladesh beat it? Or Even Bermuda put up a good batting display?
Players are routinely criticised for doing ads and for modeling. Instead of blaming them, why do we not have enough talent pool so that they do not take their place for granted and work to stay in every match?
Only a strong circuit of school, college and state level cricket can provide a good pool of national cricketers. This means incentives at these levels. This means money to be invested in infrastructure - stadiums, grounds, coaches, academies, tournaments. Money also needs to be invested in people who take charge of these things. The setup quite simply has to be run on a corporate model. The same is true for all the state associations. Plus their needs to be a long term plan.
The fact seems to be that the cricket boards in India have become just status and power symbols for their members. What is the need for a politician of Sharad Pawar's status to head a cricket board? How much time and thought has he given to the job? Even if there is merit in big wigs heading the boards, the least they can do is to build an institutional capacity so that cricket grows and India does not have to lose to Bangladesh and repeat what happened to India in hockey!The board should look inwards and come out with its plans for the future. It must also fix accountability.
Many would say It is already too late and it won't be surprising if Supreme Courts asks it - "Why should it not be dissolved?" - just like it asked the Municipality of Delhi (MCD) during the ongoing public litigation to clear the mess that Delhi has become. Anybody ready to file a Public Interest Litigation?
Lets say for a moment that BCCI cannot solely be judged based on what the team does on the field. So how does the board fare when compared to other cricket boards, especially the Australian Cricket Board (ACB)?
ACB is run by a team of 13 directors who are appointed by 6 State associations. A quick look at the profile of each of them reveals that all of them are former cricketers. While some have played for Australia or a State, the rest, barring one, have at least played at a university and club level. The one exception is a senior doctor. ACB has approximately 60 full-time staff to run the operations. However, the responsibility for implementing the strategic plan and managing Cricket Australia's operating activities rests with the Chief Executive Officer and Senior Management Team. The work is divided into six operational areas with clear roles and responsibilities.
To find out what BCCI is upto – one can only look at the outcomes as there is no information on what it is actually doing ( just to repeat – there is not even a website!). A quick search on Wikipedia reveals that it is just a society registered under the Tamil Nadu Societies Registration Act. Therefore, it is unlikely to be covered under the Right to Information Act. So even that remedy seems to be lost.
At the same time, BCCI enjoys tax exemptions and other benefits such as use of Indian police officers for free and often uses government-owned stadiums across the country at a nominal annual rent.It has the authority to select players, umpires and officials to represent the country in international events and exercises total control over them. Without its recognition, no competitive cricket involving BCCI-contracted Indian players can be hosted within or outside the country.
It is a documented fact that it is the richest cricketing board in the world - just to illustrate - the global media rights for international cricket to be held in India between March 2006 and March 2010 were reported to have been awarded to production house Nimbus for a mind-boggling sum of US $612 Million.
BCCI is not only bankrupt when it comes to vision and execution but it also seems to have other exciting stuff of its own to take care of. For instance, the legality of the office-bearer's election at the board's annual general meeting (AGM) held on September 29, 2004 itself is subjudice.
At the cost of this becoming a piece to generally trash BCCI - what is no excuse for the fact that the board has not invested in institutional capacity in which the game can thrive. Why else can team like Bangladesh beat it? Or Even Bermuda put up a good batting display?
Players are routinely criticised for doing ads and for modeling. Instead of blaming them, why do we not have enough talent pool so that they do not take their place for granted and work to stay in every match?
Only a strong circuit of school, college and state level cricket can provide a good pool of national cricketers. This means incentives at these levels. This means money to be invested in infrastructure - stadiums, grounds, coaches, academies, tournaments. Money also needs to be invested in people who take charge of these things. The setup quite simply has to be run on a corporate model. The same is true for all the state associations. Plus their needs to be a long term plan.
The fact seems to be that the cricket boards in India have become just status and power symbols for their members. What is the need for a politician of Sharad Pawar's status to head a cricket board? How much time and thought has he given to the job? Even if there is merit in big wigs heading the boards, the least they can do is to build an institutional capacity so that cricket grows and India does not have to lose to Bangladesh and repeat what happened to India in hockey!The board should look inwards and come out with its plans for the future. It must also fix accountability.
Many would say It is already too late and it won't be surprising if Supreme Courts asks it - "Why should it not be dissolved?" - just like it asked the Municipality of Delhi (MCD) during the ongoing public litigation to clear the mess that Delhi has become. Anybody ready to file a Public Interest Litigation?
Thursday, February 01, 2007
10 things I wud love to see in 2007.. make that 11
1. Mobile phones with block sender feature to block telemarketeer's calls - just like email spam!
2. An SUV which is smaller than Scorpio but bigger than wagon R :)
3. A version of windows that boots up in 5 seconds
4. A government website which actually provides some useful online transaction service to citizens without glitches and without requiring paper work.
5. Government actually acting on online complaints and providing status report to complainants
6. CNG powered ACs for residence (should be safe!!)
7. Laptops with 8 hours of battery life .. hmm. ability to recharge from sunlight !!
8. Fast foods without harmful hydrogenated oils
9. Affordable realestate (why can't you buy a 3 bedroom house in delhi for 30-35 lakhs??)
10. Polite people
11. Yea.. safe passage of Pension Bill !!
2. An SUV which is smaller than Scorpio but bigger than wagon R :)
3. A version of windows that boots up in 5 seconds
4. A government website which actually provides some useful online transaction service to citizens without glitches and without requiring paper work.
5. Government actually acting on online complaints and providing status report to complainants
6. CNG powered ACs for residence (should be safe!!)
7. Laptops with 8 hours of battery life .. hmm. ability to recharge from sunlight !!
8. Fast foods without harmful hydrogenated oils
9. Affordable realestate (why can't you buy a 3 bedroom house in delhi for 30-35 lakhs??)
10. Polite people
11. Yea.. safe passage of Pension Bill !!
Wednesday, January 03, 2007
Who is batting for the consumer?
A consultative paper posted by TRAI on its website today laments that institutional mechanism for handling consumer grevience is inadequate! So consumers end up complaining to the President, Prime Minister and all sundries...
TRAI now proposes to define the constitution and functions of the institutional mechanism for the redressal of consumer grievances and consumer protection. This is being done as the mechanism for redressal of consumer grievances within the telecom sector is completely missing.
The consultations over the next few days would be used to make them into a good framework.
Ensuring that consumer greviences are well handled is a mammoth task. While the regulators in India seems to have done ok in framing rules etc, monitoring compliance of the rules and regulations has proven to be inadequate.
Pick up the newspaper and you know what I mean. Telecom operators want calls to 'prospective' and 'past' customers out of the Do Not Call (DNC) lists!! Imagine treating all past customers upto 18 months and anyone who ever called to inquire for a service in last three months as excluded from DNC! Doesn't it defeat the very idea!? And just how does one propose to regulate these norms, even if they were argued to be reasonable?
Most businesses would prefer not to have competition at all and do not want to service a customer who has already paid. And it is not half as bad (for them) if body like the MRTPC, (despite the limited purpose that it served) is wound up and the much awaited Competition Commission of India (CCI) is left defunct.
The rationale behind CCI was the need for a regulator who fosters clean competition among industrialists and businesses and ensures that competition moves in a direction beneficial to the customer. At present, the amendment Bill on CCI seems to be with the Standing Committee on Finance.
Despite open competition, service providers show disregard for customers and telecom operators are not the only one.
Airlines don't want to train their pilots on CAT III system even as passengers miss flights or simply sit out at airports for hours. Ofcourse, no regulator mandates that 'such percentage of flights' out of 'so and so airports' will have to be CAT III compliant by every airline. Even better, why not bar non-compliant airlines for 1 month of foggy weather? After all, the airlines don't think it makes business sense to invest in technology so they could not be losing a great deal of business!
Insurance companies continue to charge huge commissions for policies which are nothing but mutual fund schemes in disguise. The regulator do not seem to do much ( it does not even educate the customers on the extremely high commission charges on initial year(s) premium). Health insurers want to hold back your claim on the pretext of pre-existence of disease even as they gleefully say - 'No health check required' at the time the policy is sold!
Banks keep calling everybody on their mobile to sell everything from a loan, credit card to an insurance. If one is subscribed to credit card or are buys anything that is post paid - mobile, landline, internet or anything - it is an enormous task to end the subscription - one has to literally sue the service provider in order to stop getting bills and payment requests, long after having unsubscribed. Banks are even reported to enter into understanding on floor rates among themselves for loans so they don't undercut each other.
Privatisation for electricity has left consumers wondering as it has meant that private electricity companies get separate areas demarcated for themselves instead of competing against each other.
Broadly, competition, where it is a reality, has failed to ensure customer service in many sectors. Various ombudsmen, consumer courts and sector regulators etc have proved to be inadequate.
In cases where competition is not a reality - for example - utilities like electricity and city public transport (taxi in Delhi, local trains in Mumbai), government has not encouraged direct competition. Why should the government not allow Reliance and NDPL to target customers in each other's areas in Delhi (after all both the players have got nearly 5 years of monopoly behind then now!)
if RBI, IRDA, TRAI are doing a lot of things for consumer interest, they are not communicating their actions well. For example, why can't RBI do a test check on whether banks take the DNC seriously and then fine the banks and publicise its actions?
While Income Tax department exhorts you to pay your taxes through ads in TV and print, the same zeal is missing in seeing regulators like RBI etc educating consumers on how to make use of their website to file online complaints (the security certificate on the online complaint section of RBI seems to have expired when I checked the site just now)
There have hardly been ads (so if there were few - they need to be more) by the regulator which says how the cable bill will go down and what are the penalties for inadequate service. While the latest consultative paper of TRAI aims to shake up the structure within an operator for handling consumer greviences, it needs to be quicker on its feet. Why is it that all operators don't by default offer a standard plan and publicise the same. The standard plan could be ( 75 for free to air channel, + Rs 5 for every pay channel. So with 10 pay channel you pay - 125 + taxes). Every operator should be mandated to offer this besides their own plans.
Should the capital market division in finance ministry be asking the regulators a six monthly status report? if it asked these reports to be well publicised..it would increase accountability.
If the sector regulators are do their task and the CCI is set up to serve as an active watchdog, competition could be much more rewarding.
The fog over regulations is so dense that any hope of someone is batting for consumer is worth checking out. We need batters like TRAI to do lot more and CCI to also come to bat!
TRAI now proposes to define the constitution and functions of the institutional mechanism for the redressal of consumer grievances and consumer protection. This is being done as the mechanism for redressal of consumer grievances within the telecom sector is completely missing.
The consultations over the next few days would be used to make them into a good framework.
Ensuring that consumer greviences are well handled is a mammoth task. While the regulators in India seems to have done ok in framing rules etc, monitoring compliance of the rules and regulations has proven to be inadequate.
Pick up the newspaper and you know what I mean. Telecom operators want calls to 'prospective' and 'past' customers out of the Do Not Call (DNC) lists!! Imagine treating all past customers upto 18 months and anyone who ever called to inquire for a service in last three months as excluded from DNC! Doesn't it defeat the very idea!? And just how does one propose to regulate these norms, even if they were argued to be reasonable?
Most businesses would prefer not to have competition at all and do not want to service a customer who has already paid. And it is not half as bad (for them) if body like the MRTPC, (despite the limited purpose that it served) is wound up and the much awaited Competition Commission of India (CCI) is left defunct.
The rationale behind CCI was the need for a regulator who fosters clean competition among industrialists and businesses and ensures that competition moves in a direction beneficial to the customer. At present, the amendment Bill on CCI seems to be with the Standing Committee on Finance.
Despite open competition, service providers show disregard for customers and telecom operators are not the only one.
Airlines don't want to train their pilots on CAT III system even as passengers miss flights or simply sit out at airports for hours. Ofcourse, no regulator mandates that 'such percentage of flights' out of 'so and so airports' will have to be CAT III compliant by every airline. Even better, why not bar non-compliant airlines for 1 month of foggy weather? After all, the airlines don't think it makes business sense to invest in technology so they could not be losing a great deal of business!
Insurance companies continue to charge huge commissions for policies which are nothing but mutual fund schemes in disguise. The regulator do not seem to do much ( it does not even educate the customers on the extremely high commission charges on initial year(s) premium). Health insurers want to hold back your claim on the pretext of pre-existence of disease even as they gleefully say - 'No health check required' at the time the policy is sold!
Banks keep calling everybody on their mobile to sell everything from a loan, credit card to an insurance. If one is subscribed to credit card or are buys anything that is post paid - mobile, landline, internet or anything - it is an enormous task to end the subscription - one has to literally sue the service provider in order to stop getting bills and payment requests, long after having unsubscribed. Banks are even reported to enter into understanding on floor rates among themselves for loans so they don't undercut each other.
Privatisation for electricity has left consumers wondering as it has meant that private electricity companies get separate areas demarcated for themselves instead of competing against each other.
Broadly, competition, where it is a reality, has failed to ensure customer service in many sectors. Various ombudsmen, consumer courts and sector regulators etc have proved to be inadequate.
In cases where competition is not a reality - for example - utilities like electricity and city public transport (taxi in Delhi, local trains in Mumbai), government has not encouraged direct competition. Why should the government not allow Reliance and NDPL to target customers in each other's areas in Delhi (after all both the players have got nearly 5 years of monopoly behind then now!)
if RBI, IRDA, TRAI are doing a lot of things for consumer interest, they are not communicating their actions well. For example, why can't RBI do a test check on whether banks take the DNC seriously and then fine the banks and publicise its actions?
While Income Tax department exhorts you to pay your taxes through ads in TV and print, the same zeal is missing in seeing regulators like RBI etc educating consumers on how to make use of their website to file online complaints (the security certificate on the online complaint section of RBI seems to have expired when I checked the site just now)
There have hardly been ads (so if there were few - they need to be more) by the regulator which says how the cable bill will go down and what are the penalties for inadequate service. While the latest consultative paper of TRAI aims to shake up the structure within an operator for handling consumer greviences, it needs to be quicker on its feet. Why is it that all operators don't by default offer a standard plan and publicise the same. The standard plan could be ( 75 for free to air channel, + Rs 5 for every pay channel. So with 10 pay channel you pay - 125 + taxes). Every operator should be mandated to offer this besides their own plans.
Should the capital market division in finance ministry be asking the regulators a six monthly status report? if it asked these reports to be well publicised..it would increase accountability.
If the sector regulators are do their task and the CCI is set up to serve as an active watchdog, competition could be much more rewarding.
The fog over regulations is so dense that any hope of someone is batting for consumer is worth checking out. We need batters like TRAI to do lot more and CCI to also come to bat!
Thursday, December 28, 2006
U can't blame the left...
Ever since pension reforms were put on the center stage in 1998, each year has been a step forward – till 2006.
The stalemate in 2006 would have been unimaginable in early 2004. The Ministry of Finance had already notified the features of the New Pension System (NPS) and the pension and provident fund rules for new central government recruits. Interim PFRDA had been setup. Two states, Tamil Nadu and Himachal Pradesh had notified their intentions to switch to a defined contribution pension. Both BJP (then in power) and Congress supported the legislation. This was before the general elections in 2004.
With Congress led UPA in power (with Left allies who are against the NPS), in June 2004, Finance Minister P Chidambaram announced the government's intention to bring the legislation to regulate the NPS. The PFRDA Bill was tabled in Parliament in March 2005 and referred to the Standing Committee on Finance. It seemed that the government was going ahead with the NPS.
None of the concerns and suggestions voiced by the Standing Committee altered the fundamental scheme of the NPS. The all party committee which included the representatives of the Left, broadly suggested the following – One of the fund managers should be a public sector company. Preference should be given to fund managers who offer guaranteed returns and members should have an option to invest 100% of their pension fund in government securities. This report was tabled in July 2005.
By 2005 end, 15 States had notified their intentions to join NPS. Yet, the winter session of 2005 did not see a new Pension Bill.
India already has a plethora of mutual fund schemes and insurance schemes. The existing laws allow insurance companies to float pension funds. Nothing stops mutual funds from offering schemes tailored to needs of people looking for long term savings. When all this can already be done, the Left could not be opposing a Bill which merely seeks to set up a regulatory framework that seeks to ensure better fund management, effective distribution model, and low fees and charges?
NPS is completely voluntary for all non-central government employees. It does not replace EPF. Even for the central government employees, it is mandatory only for those recruited on or after January 1, 2004. For them, it replaces pension and GPF.
For these new recruits, NPS does not let the government off from its liability. Instead, it asks the government to pay its share upfront. Reams have been written on the unsustainability of pension liabilities based on defined benefits. NPS gives the employee the choice to invest the funds for his retirement needs and puts in place the fund management structure so that the funds meant for retirement are actually invested for the long term.
The Left parties could be worried that the new central government recruits would not get a defined pension once they start retiring, probably 2039 onwards, but can the government justify its stand?
The corpus of the new recruits covered under NPS is piling up and had even 1/5th of it been invested in a broad based index fund (BSE 200) from January 2004, it could have added 4-5 per cent per annum to the yield.
NPS is not only for government recruits but it provides a long term saving avenue on a voluntary basis to everybody. One third of India's population is below 15 years (see the post below this).
The government has set up the sixth pay commission, has taken stand on job reservation and is working on an unorganised sector social security Bill. On the Pension Bill, its has let all the three sessions in 2006 pass.
There is a lot that the government can do and the next few months should reveal its intentions more clearly. It would be a pity if it reconciles to simply blaming the Left.
Rs. crore
Pension exp.* (Central Govt.)
97-98 |98-99 |99-00 |00-01 |01-02 |02-03 |03-04 |04-05 |05-06 |06-07**
6,881| 10,057|14,286 |14,379 | 14,436 | 14,496 |15,905 |18,300|20,232|21,312
* does not reflect pension expenses of bodies and agencies which are incurred indirectly through grants and aid.
** Revised BE
The stalemate in 2006 would have been unimaginable in early 2004. The Ministry of Finance had already notified the features of the New Pension System (NPS) and the pension and provident fund rules for new central government recruits. Interim PFRDA had been setup. Two states, Tamil Nadu and Himachal Pradesh had notified their intentions to switch to a defined contribution pension. Both BJP (then in power) and Congress supported the legislation. This was before the general elections in 2004.
With Congress led UPA in power (with Left allies who are against the NPS), in June 2004, Finance Minister P Chidambaram announced the government's intention to bring the legislation to regulate the NPS. The PFRDA Bill was tabled in Parliament in March 2005 and referred to the Standing Committee on Finance. It seemed that the government was going ahead with the NPS.
None of the concerns and suggestions voiced by the Standing Committee altered the fundamental scheme of the NPS. The all party committee which included the representatives of the Left, broadly suggested the following – One of the fund managers should be a public sector company. Preference should be given to fund managers who offer guaranteed returns and members should have an option to invest 100% of their pension fund in government securities. This report was tabled in July 2005.
By 2005 end, 15 States had notified their intentions to join NPS. Yet, the winter session of 2005 did not see a new Pension Bill.
India already has a plethora of mutual fund schemes and insurance schemes. The existing laws allow insurance companies to float pension funds. Nothing stops mutual funds from offering schemes tailored to needs of people looking for long term savings. When all this can already be done, the Left could not be opposing a Bill which merely seeks to set up a regulatory framework that seeks to ensure better fund management, effective distribution model, and low fees and charges?
NPS is completely voluntary for all non-central government employees. It does not replace EPF. Even for the central government employees, it is mandatory only for those recruited on or after January 1, 2004. For them, it replaces pension and GPF.
For these new recruits, NPS does not let the government off from its liability. Instead, it asks the government to pay its share upfront. Reams have been written on the unsustainability of pension liabilities based on defined benefits. NPS gives the employee the choice to invest the funds for his retirement needs and puts in place the fund management structure so that the funds meant for retirement are actually invested for the long term.
The Left parties could be worried that the new central government recruits would not get a defined pension once they start retiring, probably 2039 onwards, but can the government justify its stand?
The corpus of the new recruits covered under NPS is piling up and had even 1/5th of it been invested in a broad based index fund (BSE 200) from January 2004, it could have added 4-5 per cent per annum to the yield.
NPS is not only for government recruits but it provides a long term saving avenue on a voluntary basis to everybody. One third of India's population is below 15 years (see the post below this).
The government has set up the sixth pay commission, has taken stand on job reservation and is working on an unorganised sector social security Bill. On the Pension Bill, its has let all the three sessions in 2006 pass.
There is a lot that the government can do and the next few months should reveal its intentions more clearly. It would be a pity if it reconciles to simply blaming the Left.
Rs. crore
Pension exp.* (Central Govt.)
97-98 |98-99 |99-00 |00-01 |01-02 |02-03 |03-04 |04-05 |05-06 |06-07**
6,881| 10,057|14,286 |14,379 | 14,436 | 14,496 |15,905 |18,300|20,232|21,312
* does not reflect pension expenses of bodies and agencies which are incurred indirectly through grants and aid.
** Revised BE
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