Diversity matters

As reported in The Sunday Express, roughly 150 global pension funds are now in India, buying Indian equities and corporate bonds. They are benefiting from the high returns to equity arising from high GDP growth in India. However, at the same time, there are no Indian pension funds harnessing the superior returns of Indian equities and corporate bonds. Indian workers have been deprived of sharing the gains of the industrial growth by their short-sighted leadership. One reason investment in equity is attractive is the high returns it generates. In all countries, over long time periods, diversified equity portfolios have outperformed investments in government bonds or corporate bonds. In India, it is estimated that in the next 35 years, government bond portfolios will deliver 5 per cent returns per year while equities will deliver 15 per cent returns per year. As a consequence, a pension portfolio which invests 100 per cent in equities delivers roughly 10 times more in pension wealth as compared with a government bond portfolio.

So instead of blocking pension reforms, the Left parties — who say they work for the best interest of workers — need to urgently push for the implementation of the New Pension System, through which the Indian working classes would become owners of Indian firms by means of equity investment. The simple question here is: why should Indian pension assets be kept away from Indian equities and corporate bonds, while 150 global pension funds are doing this? Currently the bulk of pension savings of workers are with the EPFO which does not invest in equity. This is despite the fact that there have been attempts to move towards a system where at least 5 per cent of the money in EPFO can be invested in equity. The opposition to investment in equity actually works against the workers, whose interest the Left parties seek to protect.

... contd.

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