Lost: 13,000 chances

So, as the government, under the weight of coalition politics prevents pension money from entering stock markets, a huge majority of Indian savers will continue to remain just that: savers. They will not, as Finance Minister P. Chidambaram put it, graduate to becoming investors. We expected the highest level of debate, an intellectual examination of a policy that could make a substantial difference between a dignified retirement and a burdensome one, a point that perhaps most influences the adverse sex ratio in favour of boys “who will take care of us when we’re old”. But Karat’s reason for opposing pension funds going into the markets: the mixed experience of Chile.

The disappointment was also personal — having studied Manifesto and Marx in college, I learnt, whatever else they may be, the Left always, always, leans on logic, argument, dialectics to substantiate an argument. This was indeed the superstructure within which it operated. You can have a different point of view, sure, but every heated discussion over not-so-hot coffee we had was backed by facts or logic, if not always by empirical evidence.

When the Sensex crossed 13,000 yesterday, the degree of my disappointment and frustration with this thinking increased. Here is an instrument — we’re talking about investing in the markets, either directly or through mutual funds and pension funds, or even broadly through an index fund — that’s delivering never-seen-before returns. Past experience shows them to have outperformed in every country, given time.

These returns are not riding thin air. The superstructure stands strong at 8-10 per cent economic growth. This growth is being led by companies, largely in the services space but some in manufacturing. (Is that why the Left wants to get its red fingers in call centres? Its market in the form of manufacturing union is on the wane, while call centres are mushrooming as fast as taxis can cart people there.)

As reported yesterday by this newspaper, net profits of India’s largest companies have risen by over 30 per cent in the first half of this year. An expanding economy first expands its profits, and this trend is clearly visible: operating margins have risen from around 17 per cent between financial year (FY) 2003 and FY 2006, to 26 per cent in the first half of FY 2007.

Beyond the Sensex lie potential giants that hold an even greater promise — companies building India’s roads, metros, flyovers, houses and malls; companies servicing global giants through BPOs; companies creating software, offering communication services; companies in retail, textiles, financial services. All of which, because of their smaller base, have the potential to join the Sensex, quite like Infosys, Bharti Airtel, Suzlon have in the past. Should our retirement money not go into this instrument?

Besides, once a government servant gets his salary, it is his to spend or invest as he pleases. By insisting on a system that ensures inflation-indexed, half the last salary drawn as pension, the Left is telling us that government servants are a special breed, their pension is above all. It is telling us that we, the taxpayers, should pay government servants a high return with zero risk. And if the returns fall short, I suppose, our income tax rate should increase to feed this statistically insignificant, disgustingly pampered minority, that is able to extract rents.

Every economy has a cost. That cost has to be borne by the entire society. To fix high interest rates to a small minority is fundamentally unfair. Every economy also has an opportunity. That opportunity has to be shared by the entire society. To prevent pension money from going into the market, the Left is putting a road block to this opportunity. Most important, if like many developed countries, India is unable to sustain and make good its pension promises, will the rest of us have to pitch in to prevent the pension time bomb from exploding? The Railways is very close to it already. PF, PPF, GPF and all other artificially created interest rate instruments are seeing a shortfall of over Rs 3,500 crore, according to a finance ministry official.

The way out: one, create a regulatory framework that is not only strong and robust, but one that talks to people and tells them that the only risk in stocks is short-term volatility, not fraud. Two, create an investor protection infrastructure that compensates investors for fraudulent activities of market players, while imposing severely debilitating fines on them. Three, strengthen this infrastructure in a more efficient manner by involving insurance companies, whose business — risk management and mitigation — it is to take on and insure that risk at low cost. Four, push through a financial literacy drive, across the country, in schools and colleges, but equally in workplaces and government. I would add political parties to that list.

Let us not celebrate Sensex 13,000 as merely another milestone. Sensex 13,000 could be — and must be — a precursor to enabling a large mass of India to partake of the benefits of the India Arriving story. And the best way to do that is to allow pension monies to be invested there.