The decision by the Employees’ Provident Fund Organisation (EPFO) last week has unequivocally and irreversibly opened the gates for pension reforms. While the decision to open fund management to three private sector fund managers — HSBC AMC (Asset Management Company), ICICI Prudential and Reliance — and to the State Bank of India is rather simple, the fact that the EPFO’s powerful Central Board of Trustees felt the need for better fund management — and found private firms worthy of shouldering that responsibility — is a step that shows a new thinking in tune with changing times.
I am enthusiastic about this move not merely from the political or public policy perspective. The numbers thrown up as a result of this decision show a high level of economic efficiency, unseen so far. The charges bid by the three firms to manage about Rs 30,000 crore per annum are the lowest we’ve seen in independent India. At less than one basis point (100 basis points make a percentage point), HSBC, ICICI and Reliance are offering economies of fund management that scale allows them.
Opinion in Hindustan Times, August 03, 2008