Social Security or Fraud?

Mohan Guruswamy

Mohan Guruswamy is Chairman and founder of Centre for Policy Alternatives, New Delhi, India. He has over three decades of experience in government, industry and academia. He can be contacted at mohanguru[at]

A good businessman is one who will have you part with your money for a product or service and then have you believe that he gave you something worth a lot more for next to nothing. Gujarati’s have business in their veins and Narendra Modi is no exception. He is in fact a champion who can sell you a ping-pong ball and make most believe it’s a football!

Some days back he launched three new “social security” schemes. The schemes – which include accident insurance, life insurance and a pension plan supposedly target the people from the economically deprived and the unorganized sections, who are neither covered by any form of insurance nor get any. But there is a catch. Only people who have a bank account can avail them off. Out of a population of 1.2 billion, we have only 150 million with bank accounts, and of these a good third don’t have any credit balance.

Pointing out the necessity for such schemes, PM Modi, in his address, said, “The journey to

(file photo from the Wiki page of PM Narendra Modi)
(file photo from the Wiki page of PM Narendra Modi)

development will be incomplete if the poor do not share its fruits”. Banks were nationalized for the poor but did we see the poor in the banks? Eighty-90% of people do not have access to pension and insurance,” he said. “But all the troubles happen to the poor, not the rich,” he said, “They sleep on footpaths, they have to die…” Since 80-90% do not have bank accounts, the PM’s new “social security” schemes do not apply to them either. So what is he talking about?

The accident insurance (Pradhan Mantri Suraksha Bima Yojana) will offer a renewable accidental death-cum-disability cover of Rs. 2 lakh for a premium of Rs. 12 per annum. The life insurance scheme (Pradhan Mantri Jeevan Jyoti Yojana) will offer a renewable one-year life cover of Rs. 2 lakh for a premium of Rs. 330 a year.

The Atal Pension Yojana, is a pension scheme that will focus on the unorganized sector and provide subscribers a fixed minimum pension of Rs 1,000, 2,000, 3,000, 4,000 or Rs 5,000 per month starting at the age of 60 years, depending on the contribution option exercised on entering at an age between 18 and 40 years. The period of contribution by any subscriber under APY would be 20 years or more. Very simply this means that you will get back what you invest. One cannot say more than you invest because in all such schemes you will get only a part of what your money would amount to after interest is factored in.

This is where the element of fraud comes in. These three schemes do not receive any government input nor is there any budgetary support provided. The Finance Minister’s 2015 Budget Speech does not have a word on these. From the sketchy details provided on these three schemes it is clear that they are meant only for those with bank accounts, for those with money in their accounts and those willing to part with their money for any or all of them. The schemes by themselves are quite good, but neither are they new or is there any budgetary input from the government. It is with our money. Then how can the government, and the Prime Minister claim ownership of the schemes?

One can understand the PM naming a scheme after himself or any of his mentors, when the government provides the financial support for it. The previous government had the unhealthy habit of announcing government funded schemes named after Jawaharlal Nehru, Indira Gandhi, Rajiv Gandhi and sometimes even after lesser members of the family like Motilal Nehru, Kamala Nehru and even Sanjay Gandhi. It made an exception for its flagship program MNREGA, which was named after Mahatma Gandhi.

The last NDA government during its last term in office had introduced the Varishtha Pension Bima Yojana (VPBY) as a pension scheme for senior citizens. Under the scheme 3.16 lakh annuitants are being benefitted and the corpus amounts to Rs 6,095 crore. The FM in his budget speech proposed to revive the scheme for a limited period from 15 August 2014 to 14 August 2015 for the benefit of citizen’s aged 60 and above, and an appropriate provision was made for this. But none of the schemes launched with so much fanfare yesterday are government funded. Nowhere in his 253 paragraphs speech does the Finance Minister make any mention of these three “new” schemes.

Now lets take each one of these three schemes one by one. The Pradhan Mantri Suraksha Bima Yojana entails an annual premium of Rs. 12 to provide a cover of Rs. 2 lakhs in case of accidental death, and fractions of it for various disabilities. Since as much as a third of the fifteen crores of bank accounts opened after the advent of the Jan Dhan Yojana have no balances in them, this scheme is clearly meant for the ten crores with bank accounts. This still leaves 110 crores of Indians outside its net. Now if the government were to provide the premiums to cover all Indians, it will entail an annual commitment of just Rs.1440 crores. Not an outlandishly large sum for a nation with the world’s third largest PPP GDP. But the government doesn’t even provide a single paisa for it but claims ownership. That to me is a fraud.

Similarly the other two schemes over which the Prime Minister claims ownership are just a case of old wine in new bottles. These kinds of schemes already exist. Given that the life expectancy is just 65.5 years, the policy taker will on an average benefit for only 5.5 years what he pays for over a complete working age, which could be anywhere between 30-40 years.

Any actuarial life table, which is a table which shows for each age what the probability is that a person of that age will die before his or her next birthday or the probability of death, will give the insurer a pretty good idea of how many in an age cohort who take out insurance on their lives will survive. Usually the number of people who take out policies will by far exceed the number of policyholders who die, thereby giving the insurer a handsome profit. Insurance is not about charity. It’s a business to earn money. Now there is another catch here. The sum a person receives after the expiry of the policy term is considerably less than the sum the insured person would have paid after factoring in the interest earned on the monthly or yearly payments made.

There is a benefit to the government from a bigger insurance business. More than the taxes on profits earned, insurance funds, which by their very nature are long term funds, are very useful for government infrastructure projects. Thus, while the policyholder sleeps assured of his or her family’s security in the event of death, the government benefits hugely from by. Clearly the more the number who get insured, the greater the State benefits.

Quite clearly Narendra Modi is habituated to claiming what is not his as his. As is his claim over Sardar Patel, a man who abhorred the RSS all his life and even had it banned. The government is giving nothing to us but wants us to believe what we give is theirs to give.

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