Editorial: Pensioning off Parliament

Most people who favour allowing more players, public as well as private, in India’s pensions market will be pleased with the finance minister’s initiative in asking the pensions regulator to see if the market can be opened up without necessarily waiting for Parliament to pass the Pension Fund and Regulatory Development Authority (PFRDA) Bill. Since the Bill has been held up for more than a year due to opposition from the Left parties, and the government may still not have an assured majority in the two houses of Parliament, the temptation is there to attempt reforms by stealth. If it works, millions of Indians will no longer be hostage to the inefficient government-owned Employees Pension Fund Organisation (EPFO), and can hope to choose their pension fund managers and, dare we say it, even the type of instruments in which they want their savings to be invested. The problem with this approach, should it be followed, is that it might set a bad precedent, by making basic changes to an existing scheme of things without getting Parliament’s imprimatur.

It is important to understand what the PFRDA Bill seeks to do. It provides statutory powers to the pension fund regulator, which will then lay down the rules of engagement for fund managers. Its job is also to ensure that these managers abide by the rules. If, for instance, a fund manager invests the pension funds of millions in group companies (assuming that the pension guidelines do not allow this), a PFRDA with statutory powers can strip the fund manager of his licence, penalise him and take such other action as may be required. A PFRDA that does not have such powers can of course take action based on the contracts that pension fund managers sign with it, but such action will have to be enforced through civil courts and procedures that could take decades. It is surely foolhardy, even dangerous, to ask millions to entrust their life savings in such a scenario.

This desire to bypass Parliament is not an isolated instance; executive actions in areas that might be considered to be part of the legislative domain have a hoary history, going back to the formation of the Planning Commission by executive order in or around 1950; the same Commission now sits in judgment on how big or small state annual plans should be. Sometimes, the law itself is often so loosely framed, or its subsidiary rules so written, that it allows the government to do pretty much whatever it wants. One instance is the Fiscal Responsibility and Budget Management Act of 2003, whose intention was to make sure that the government in power would no longer be allowed to be profligate; it therefore set clear targets for fiscal correction to be achieved. Yet, the whole scheme has been framed to pretty much give the government carte blanche — if the government of the day fails to meet the fiscal deficit targets specified under law, all that it is required to do is give Parliament an explanation in writing!

In another instance, the Insurance Regulatory and Development Authority (IRDA) has asked the government to transfer some of the issues under insurance law to the ‘rules’. There are several other such instances too, of the government trying to bypass Parliament, just as there are several instances (the infamous Schedule 9) of Parliament trying to hide laws from the scrutiny of the courts, which goes against the original plan under the Constitution. While this newspaper welcomes opening up the pensions market, to do so through the back door, so to speak, is not advisable and would set another bad precedent. Instead, the government should focus on trying to get Parliament’s approval for the Bill that is before it.