Social security system in India: an international comparative analysis

In India the lack of a wide social security net has serious implications for well-being of aged, poor people who are unable to meet their old age needs. India’s workforce is largely based in unorganised sector where pension provisions are mainly of a  voluntary nature. The size of this sector is a bottleneck in social security provision to the elderly poor in India.

This paper examines selected components of the social security system in India and compares them with their OECD counterparts.

The authors highlight that:

• India has a larger pool of young population than most of the OECD countries -  the existing population is very young and therefore in the working age group
• historically, the Indian policy makers have viewed the pension system as a welfare measure and therefore, it lacks in financial professionalism, diversification, and in the belief that pension funds can also be treated as an asset
• the Indian system is biased towards the organised formal sector as workers in this sector are benefitted with the provisions under various labor laws. Even then the pension provisions in India are far behind the OECD benchmark
• in the unorganised sector, old age income remains mainly confined to voluntary savings. The New Pension System although makes the pension amount an old age asset, is silent on the social security provisions to the poor
• the average income earners are not able to replace their pre-retirement earnings with pensions compared to most of the OECD countries
• in terms of the gross pension wealth, India is nearer to the OECD average only in the low income category for men. Out of 5% of health care expenditure as a percentage of GDP, government’s share in India accounts even less than 1% which is significantly lower than the OECD benchmark

Although the Potential Support Ratio (PSR) is relatively high in India compared to the OECD countries,   such a demographic advantage also necessitates in having social security provision for the future. With further improvement in life expectancy, the share of old age population will increase and thus the potential support ratio may decline.