No better time than present

The problem with the current post-retirement scheme is not only how long but also how many. As people live longer - and fewer babies are born - the pension problem can only get worse. The railways is a perfect example. In a few years, it will have more pensioners than employees. The railways had 68 pensioners to 100 employees five years ago. In 2002, the ratio was 73 and in 2004, 82.

This will play out everywhere. But India still has an advantage. Unlike the developed world where nearly one-fifth of the population is already be yond working age, India is going to have a larger working age population.

The economic impact of this low number of dependents and more workers is often referred to as the "demographic gift". Economists have attributed almost a third of the per capita income growth in East Asia between 1965 and 1990 to this demographic dividend and there is a good chance that India too could piggyback its large workforce to increase productivity and push growth.

India's dependency ratio - number of persons below 15 years and over 65 years per 100 people in the 15-64 age group - will decline from the current 62.5 to 46.1 by 2025. But the golden opportunity will not last for long. By 2050, the dependency ratio would be back to 52. Around the same time, the old age dependency ratio would be 22.6, more than twice of today's ratio of 8.7.6. The larger the proportion of elderly in an economy - and thus fewer people contributing to growth - less the momentum for growth and tax collections. And the more the government's spending on health care and other welfare programmes.

That is another problem with existing schemes of post-retirement benefits, right from the government pension to the provident fund. There are limits to how many people you can be generous to, the problem of scalability. Worse, in the Indian context, the government is generous to the section of the working force that is better positioned to save for their old age.

In getting them to save for their future, India has a distinct advantage over developed countries like the US where projections of the social security fund going bust by 2042 has prompted George Bush to advocate reforms. India is yet to reap the potential of the demographic dividend. This means that a large proportion of tomorrow's elderly will enter the working age over the next decade or so. A system should be put in place to enable and encourage them to save for their future. If this is done, it will mean that when they, and India ages, the demographic gift does not become the demographic burden.