Universal social pension for elderly individuals in India: Public expenditure requirements and fiscal sustainability

Abstract

Purpose

Population ageing, extended coverage of beneficiaries and rise in benefit levels of a public-funded universal social pension scheme (USPS) for elderly individuals may exert fiscal pressures on India’s General Government. Using accounting frameworks, this paper aims at an assessment of public expenditure requirements of USPS scenarios in the short term and their long-term implications for fiscal sustainability.

Design/methodology/approach

Short-term public expenditure requirements are quantified for the current pension scheme and proposed USPS scenarios, if pension benefits are adjustable for official poverty line, per capita income, the inflation rate and income elasticity of public pension expenditure. Long-term fiscal sustainability is determined by the methodology of generational accounting.

Findings

Public expenditure requirements for the USPS scenarios are remarkably higher as compared to the current expenditure on the Indira Gandhi National Old Age Pension Scheme (IGNOAPS). Short-term analyses offer economic justifications for an increase in pension benefits either by a single adjustment factor or combined adjustment factors but at a cost of remarkable increase in public expenditure requirements. Long-term analyses show that the IGNOAPS and proposed USPS scenarios are fiscally sustainable but sensitive to five parameters (productivity growth, inflation rate, discount rate, income elasticity public pension expenditure and income elasticity of health expenditure). A policy mix of these parameters leads to fiscal sustainability of the IGNOAPS and proposed USPS scenarios with differential impacts on inter-generational distribution of welfare by tax and transfer adjustments.

Research limitations/implications

Application of the generational accounting methodology is new for India’s pension economics and may have applicability and relevance for future extensions and analyses of other fiscal policy issues. This paper sets a benchmark for such extensions and applications.

Practical implications

The analyses and implications offer economic justifications for increase in levels of pension benefits by the current pension scheme and proposed USPS scenarios, introduction of sustainable USPS scenarios under current fiscal policies and choice of design parameters for a fiscally sustainable USPS.

Social implications

Social pensions have implications for providing income security and livelihood benefits for all elderly civilians in society.

Originality/value

The paper adds to the existing knowledge on economic analyses and fiscal implications of India’s old age pension policies in general and social pension policies in particular. Subject to the comparability of socio-economic structures and pension programmes, the methodology and public policy analyses of this paper may be of relevance and applicability for developing countries in Asia.

Citation

Muttur Ranganathan, N. (2017), "Universal social pension for elderly individuals in India: Public expenditure requirements and fiscal sustainability", Indian Growth and Development Review, Vol. 10 No. 2, pp. 89-116. https://doi.org/10.1108/IGDR-07-2017-0047