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Policies that put sr. citizens at road's end - Outside View by S.S. TARAPORE
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Policies that put sr. citizens at road's end
Aug 12, 2013

Respect for elders was part of the Indian ethos, but, in today's world of dog eat dog, senior citizens in India are not only treated with disrespect, bordering on contempt, but economic policies also militate against the interests of senior citizens. This is not a partisan issue, but is entrenched in policies of the past twenty years, irrespective of the hue of the party/alliance in power. This would no doubt be contended by policymakers but the facts speak for themselves.

No safety net for senior citizens

Unlike in the industrial countries, the bulk of India's population is not protected in the evening of their lives. It is true that government servants, public sector employees and some corporate employees are covered by pensions with varying degrees of inflation protection. In a number of cases, there is some sort of superannuation fund, which the employee receives on retirement. But yet, there is a very large segment of the population which is totally bereft of any sort of old age benefits.

A characteristic of India is that large household sector savings reflect the innate thriftiness in the Indian psyche of concern for providing for old age. The common person makes an earnest attempt to save, but during the past two decades, financial policies have strongly militated against the interests of senior citizens.

Ravages of inflation

A common refrain of Indian financial policies of the past two decades has been that the interest rate policy should ignore the saver. The view taken is that the saver is trapped and has nowhere to go, and will, therefore, part with savings at whatever return is offered. It is unfortunate that Indian politicians, civil servants, policymakers in the financial sector, corporate honchos, academic economists and analysts all believe in a low interest regime. Over the years, inflation tolerance has increased as people have had to put up with higher rates of inflation. Inflation is like a drug and once the addict is hooked on to it, higher and higher inflation is required at each round of production.

Lip service is paid to control of inflation, but little is done to effectively control it. What is reprehensible is that official statements emphasise the Wholesale Price Index (WPI), while the rest of the world monitors the Consumer Price Index (CPI). At the present time, the WPI inflation is less than 5 per cent and there are unconscionable official statements that inflation has been controlled, while the truth is that the CPI inflation rate is stubbornly close to 10 per cent. A retail inflation rate of 10 per cent per annum totally devastates the bulk of senior citizens and with inadequate rewards for financial savings, it is no surprise that savers are moving away from financial savings to physical savings.

Impact of inflation on senior citizens

The devastation caused by inflation is brought out by an illustration over the life-cycle of a senior citizen. The illustration is based on an individual who retires at age 60, with total assets of say Rs 100 lakh. A few years ago, a person with assets of Rs 100 lakh was considered as obscenely rich, but today, it appears to be very meagre. The illustration shows that with a 10 per cent long-term inflation rate, by age 70, in real terms, the asset shrinks to Rs 38.6 lakh and by age 80, it shrinks further to Rs 14.9 lakh.

It would be prudent for a retiree to invest in safe investments such as bank deposits. Assuming a 9 per cent rate of return, at age 60, it would amount to Rs 9 lakh, but by age 70, it would shrink, in real terms to Rs 3.5 lakh and further, to Rs 1.3 lakh per annum by age 80. The real income is the nominal income reduced by the extent of inflation. This illustration epitomises the decimation of senior citizens by the ravages of inflation.

Age (Years) 60 70 80 90
Asset (Rs lakh in real terms) 100 38.6 14.9 5.7
Income (Rs lakh in real terms) 9 3.5 1.3 0.5


Direct Tax Code (DTC) on savings

The DTC now being brought to Parliament, proposes to tax a whole range of savings on retirement. Assuming retirement benefits of, say, Rs 100 lakh, a person collecting retirement benefits such as provident fund, insurance policies and other benefits would have the entire amount added to income in the year in which the retirement funds are withdrawn. A retiree would need these funds to undertake locational resettlement and to generate income to substitute for earned income. As per the DTC proposal, the entire retirement benefit withdrawn, say Rs 100 lakh, would be added to income and the tax liability would be Rs 29 lakh. If the retirement benefits are retained in the retirement account and only Rs 9 lakh withdrawn each year, tax would be paid only on Rs 9 lakh. The proposal is insensitive to the problems of retirement and the need to undertake capital expenditure as one gets into retirement mode.

Defending the proposal on the ground that Ruritania and Transylvania impose such taxes, is not meaningful, as unlike these countries, in India, there is no universal social security for senior citizens.

Old age pensions

Over the years, the government has provided small pensions for senior citizens and widows who meet certain income criteria, but most destitute do not know how to go about collecting these pensions. Would a Good Samaritan provide help to locate the precise procedures and to whom to approach, in say, South Mumbai? Since the bulk of the population is to be covered by the Aadhar Card registration, it should be possible to benefit millions of deprived senior citizens in the country. Have a heart for the travails of senior citizens.

Please Note: This article was first published in The Free Press Journal on August 12, 2013. Syndicated.

This column, Common Voice is authored by Savak Sohrab Tarapore. Mr. Tarapore, is an economist and he runs his own Multi-Language Syndicated Column. Mr. Tarapore's other column, which appears in The Hindu Business Line, is titled Maverick View.

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