Pension products for the self-employed (Bhagidari Sector) in India

Abstract

The Bhagidari sector consisting of Partnership/proprietorship firms and professionals constitute a large segment of the Indian economy. They contribute 35 percent to the national income and enjoy more than 75 percent share in the service sectors like trade, transport, construction, hotels and restaurants and other services like doctors, lawyers, architects, accountants, etc. The activities where they are dominant are the fastest growing sectors in the economy. Their share in savings is more than forty percent. From the tax data one can infer that there were nearly 10 million present during 1994,95 and compared to the corporate and government sector, adequate focus has not been given to these segments. The Pension products (retirement benefit schemes) available to them are essentially tax schemes and there is a need to focus on providing pension products to this sector whose market potential is very large. Since there is fluctuation in the income flow:; of the Bhagidari sector, the retirement products are to be need based and should have variable contribution facility. Similar to corporate sector, tax breaks should be made available to the Bhagidari sector both for present contributions and also for past benefit funding. Also, there is a need to have innovative products like variable contribution, need based programmed withdrawals, etc. to increase the consumption of pension products. The delivery system can leverage on the banking network and postal network to reach the customers as well as to have market penetration.