India became the world's most populated nation in 2023, surpassing China. This population explosion will benefit India's economic growth by providing a large workforce. The working population is expected to grow to 1.67 billion by 2050, while China's population is expected to dip to 1.31 billion. India's growth will likely lead to a developed country by 2050.
As the population grows and economic conditions improve, India’s retirement age population is expected to more than double, from 9% in 2015 to 19% in 2050. This growth represents a significant increase in the elderly population in 2050 with corresponding demands for social security and healthcare.
Pensions and retirement benefits play a crucial role in providing income security to individuals after they retire. While developed countries often have well-established pension systems, the situation in developing countries is not very encouraging.
Many developing countries find it challenging to provide adequate and sustainable pension systems, including limited financial resources, high poverty rates, informal labor markets, and weak institutional capacity.
As per a report published in 2018 by the International Labor Organization (ILO), 93% of the world’s informal employment is in emerging and developing countries with the majority working in the agriculture sector.
Social security programs may provide limited retirement benefits, but informal sector employment often lacks social protection, making retirement planning more challenging. Voluntary pension schemes aim to address these gaps, but participation rates are often low. Public-private partnerships can expand pension coverage, but low participation rates may hinder their implementation.
Promoting financial literacy and educating individuals on retirement planning is crucial for informed decisions. That also echoes the ILO recommendation No. 204, which wants improvement in social protection of the millions of people working in the informal economy.
The Government of India can take the lead in helping its aging citizens prepare for retirement by embracing technology and data analytics for financial planning. I propose the creation of a “Financial Stability Barometer” (FSB) that is derived from the following available data sources and regulatory agencies:
The National Securities Depository Limited (NSDL) must provide investment details on stock exchange products.
The Insurance Regulatory and Development Authority of India (IRDAI) manages insurance, ensuring financial stability for policyholders and dependents during uncertain times.
The Reserve Bank of India (RBI) manages Indian banks, it can share contributions for fixed deposits and income proof, and calculate average monetary assets over time.
The Employees' Provident Fund Organisation (EPFO) records savings, employer contributions, and monthly salaried income for individuals through Provident Funds, enabling the decoding of income.
The Real Estate Regulatory Authority (RERA) registers personal ownership of physical properties, including residential, commercial, and income-generating rentals, ensuring transparency and accountability.
The Post Office has a larger rural reach, relieving rural populations of various saving schemes like saving accounts, recurring deposits, and national saving schemes.
A government database can store all the above data points without a person's identity to develop the FSB. The connectivity to respective agencies and sourcing investment data directly to a government-backed repository will ensure there are no constraints on poor data quality or accuracy.
This will ensure regular and accurate updates are available for data analytics. Citizens can compare investment patterns made by citizens of the same demographic and identify areas of improvement in their financial planning by accessing the FSB ranking. Since there will be no storage of personal information (like Name, National IDs, etc.) by FSB, there will be no security or privacy concerns in the digital environment.
For example, Person X uses the FSB Index module to receive a personal financial planning score based on demographic parameters (age, gender, religion, dependent family members, place of residency, income, education, etc.). The FSB helps identify actions needed to improve their score and achieve 80% or 90% of the index, beating inflation.
The indicator also advises on saving scheme top-ups. The process also helps Person X change their residency post-retirement and analyze their FSB ranking. If they move from a Tier 1 to a Tier 3 city, their scoring will be higher, indicating their financial stability.
Conversely, if they change their residency from Tier 3 to a Tier 1 city to be close to their children, their scoring may be lower, indicating their financial dependency. Thus, the FSB aims to help citizens plan their future positively and gracefully.
The FSB rankings can also bring negative impacts on citizens in the form of mental stress, disappointment, or humiliation but sometimes bitter pills are required for necessary awareness.
The game changer will be the data accumulation from various sources and its ownership by the government to hold the financial savings details of its citizens. The FSB Index will be the best prediction tool backed by data analytics and a true barometer of financial planning.
It will ultimately help the population enjoy retirement gracefully and continue to live as independent citizens in the fastest-growing country.
About the author:
Manojit Barui is Vice President of Information Technology at Nomura Services India Pvt Ltd. (Nomura Holdings, Inc). He is the Global Functional Head for Instrument Reference Data, provisioning instrument static data internally to trade and settlement applications and externally liaising with license vendors like Bloomberg, Refinitiv, etc., for data exploration and reporting data defects.
He has 16+ years of work experience in Business Data Analytics in the capital market domain and has worked across geographies like London, Singapore, and Mumbai. His highest education qualification is a Master in Management Studies (MMS) in Systems (IT) from Mumbai University. He is an ex-employee of the Bombay Stock Exchange (BSE) Ltd. His hobbies include drawing, traveling, and watching cricket.