The Left turns?

CPI (M) General Secretary Prakash Karat has refuted reports that Chinese President Hu Jintao told him and other Left leaders that they need to adopt a pragmatic approach towards globalisation, and that they should help fashion policies that promote Indian industry and infrastructure. If no such advice was given, President Hu gets no credit for the signs of change in the Left's approach to economic issues. For change there has been, and a perceptible shift at that, on some key reform issues. Disinvestment, or at least share issues by public sector companies, seem to have got back on to the government's agenda, and there also seems to be movement on allowing pension funds to invest a portion of their money in the stock market. Both are issues on which the government has been at loggerheads with the Left for many months; if progress can now be made, it will be a bit of a breakthrough.

This is something to be grateful for, but it is also as well to recognise that the scale of change remains small, and its scope narrow. The Left continues to insist, for instance, that the government guarantee that workers will get a pension equal to half their monthly salary during the last three years of their employment""till this happens, the PFRDA Bill cannot get passed by Parliament since the crux of the Bill is that workers take their chances with investments made out of their monthly provident fund/pension contributions. The current situation is that, no matter what the investments yield, the government guarantees a return.

The PFRDA will of course mandate that each pension fund has to also offer a low-risk option to workers. This will mean that the funds will be invested in government and other safe securities, in much the same way that the PF organisation invests its funds today. When nominal interest rates ruled high, as was the case in the inflation-hit mid-1990s, such an option might have ensured that pensions equalled half the pre-retirement salary of employees. But this is a money illusion because that pension shrinks in real value, once inflation-adjustment has been done. Now that interest rates have dropped along with inflation, the guarantee of pension that equals half the last salary is simply not an option in most cases. What the Left has not accepted, it is clear, is that stock market investments come with risk attached, and there can be no safety nets. In any case, since the proportion of funds proposed to be invested in equity is very small, the impact on the eventual pay-out will be so small as to make little difference. The important thing is that the principle gets accepted, and that people become more comfortable over time with the idea of a risk-reward ratio.

What is less easy to understand is the Left's insistence that the funds be invested only by public sector fund managers such as those belonging to the LIC, UTI and SBI. This is odd because almost all rankings of mutual funds show a fairly consistent pattern""fund managers in the private sector do better than their public sector counterparts. UTI in fact went belly up some years ago, and had to be bailed out by the government. If the Left is interested in the financial welfare of its trade union members, then it should be insisting that private sector fund managers with a good track record be selected to manage the funds. Ideological fervour that leans towards public sector fund managers is no substitute for the hard cash that private sector managers are more likely to deliver.