INDIA - The Japan Special Fund is to provide a US$1m grant to help India's transition to a new pension system.
The Japan Special Fund was established in 1988 and aims to help ADB's developing member countries restructure their economies in light of the changing global environment; broaden the scope of opportunities for new investment; and prepare loan projects.
India undertook wide-ranging reforms of its pension system in 2003, including the establishment of an interim Pension Fund Regulation and Development Authority and the introduction of a defined contributory pension system called the New Pension Scheme (NPS).
At present, participation in the NPS is mandatory for central government employees, but for those working in state governments and other public and private sector employees, self-employed professionals and informal sector workers, it is voluntary.
Cheolsu Kim, principal financial sector specialist at ADB's South Asia Department, said: "India lacks income security coverage and cannot sustain the fiscal burden of its existing pension system.
"The liability related to the unfunded pensions compound India's public debt problem. The existing pension system is inadequately funded and unsustainable."
The recurrent expenditure for the central Government pension system has grown from 0.6% of gross domestic product (GDP) in 1993 to 1.7% in 2002, while total pension liabilities have risen from 9.7% of net tax revenue to 12.7% during the same period.
A recent study estimated India's unfunded pension liability at $426.9bn, or 55.9% of GDP, in 2004.
The central Government deposits contributions under the existing pension scheme in individual accounts, and the investment returns are not based on market rates.
The supporting infrastructure to implement the NPS has not been fully established and the grant will help the Government transition to the NPS and develop the supporting infrastructure.
ADB said this would require the Government to provide proper pension products with adequate coverage, develop marketing channels through service providers, supporting institutions, such as the central record-keeping agency, and pension fund managers.
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