Agnipath Is Really A Minimalist Pension Scheme In Disguise, Offering Rs 6,500-Rs 7,500 A Month

The agony and violence over the government’s four-year Agnipath scheme are largely misplaced. While we can leave it to the retired generals and other self-appointed defenders of the status quo to battle it out on TV channels, the two big sticking points for potential recruits seem to be this: the four-year tenure of employment; and non-eligibility for pensions in case one is not absorbed into the armed forces permanently after four years.

For the 25 per cent of Agniveers who will get absorbed after four years on merit, there is no real issue. They will get their pensions after they retire, whenever they retire. The question is: is the uncertainty that is driving the non-qualifying young men crazy really warranted?

The scheme will give those who are not recruited at the end of four years Rs 11.71 lakh in Seva Nidhi exit benefits. This can be used to start a business, or invested for generating annuity income. Now let’s calculate what this money will earn you.

If every Agniveer who fails to make the grade after four years merely invests this money in the government’s seven-year floating rate bonds scheme, which pays 7.15 per cent and could pay more in future as inflation bumps up rates, the annual interest earnings will be Rs 71,500, paid twice a year. That’s a monthly payment of Rs 6,977. You could call it a pension.

If the amount is invested in a fixed deposit with the Housing Development Finance Corporation fixed deposit for 99 months (that’s more than eight years), which pays monthly interest at the rate of 6.75 per cent per annum, the monthly income will be Rs 6,586. If you take an annual payment, the rate is 6.95 per cent, and the proportionate monthly income is Rs 6,782.

If you want an longer-term assurance on rates, the 30-year government of India bond currently has a yield of 7.79 per cent. That’s an effective monthly income of over Rs 7,600.

The bottomline is simple: the terminal benefits after four years work out to a modest, but long-term annuity scheme that offers incomes ranging from Rs 6,500-Rs7,600. And you get to earn more on a real job over and above that, when you find one.

Put simply, Agniveers can create their own minimalist pension schemes. Maybe, the government should offer them just that instead of allowing them to blow up the money: a pension scheme with a pre-determined rate of interest which will average out to current rates of interest. The scheme may need only a marginal topping up when rates fall too low for any reason.