The Economic Survey 2024-25 tabled by Finance Minister Nirmala Sitharaman in Lok Sabha on Friday warned that India needs to steer clear of entering a pension crisis like those in Greece and Italy.
The 480-page document has highlighted that India needs a pension system that is designed to be both sustainable and scalable based on its unique demography and labour market.
Rome has the highest pension bill in the 38-nation Organisation for Economic Cooperation and Development and says outlays will climb by 58 billion euros ($60.35 billion), or 19.5 per cent, by 2025 as rising prices boost index-linked payouts.
Meanwhile, during its decade-long financial crisis that broke out in 2009, Greece was forced by its international lenders to slash pensions more than 10 times to reduce state spending and meet its fiscal targets.
When it comes to pension schemes, the survey said, the traditional “Pay-As-You-Go” (PAYGO) schemes do not ensure that funding from the younger workforce that pays pensions to retirees changes with a change in demography.
Inflation also plays a crucial role—small differences in how pensions are adjusted for inflation can lead to significant variations in payments over time.
Another key challenge is the low participation in micro-pension schemes, especially among low-income individuals, who tend to prioritise immediate financial needs over long-term savings.
The economic survey said that to meet these challenges schemes like the National Pension System and Atal Pension Yojana need to be expanded as they cover only 5.3 per cent of the total population currently.
However, noting that such a large-scale expansion is a mammoth task in a country of India’s size, the survey said that government-level schemes need to be low-cost and accessible to the elderly population.
“In principle, taking into consideration both scalability and sustainability, India’s pensionsystem design seems robust and stable. The NPS is one of the lowest-cost pension schemesglobally71 and its framework is based on a defined contribution model, which ensures thatfuture payouts are determined by market fluctuations, thereby reducing the fiscal burden onthe government,” it said.
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Economic Survey 2024-25: One thing India needs to avoid a Greece and Italy-like pension crisis
