The Pension Fund Regulatory & Development Authority's (PFRDA) decision to appoint a second central record-keeping agency (CRA) for the new pension system (NPS), to introduce competition and bring down cost, is a welcome measure. This should serve as an occasion to rethink the use of such shared infrastructure for maintaining electronic record- and account-keeping. Why restrict them, as we have so far, to demat accounts that hold securities and pension accounts? Why not extend the use of commonly-shared electronic accounts for low-cost banking? If wealth equivalent to India's GDP — that's roughly the value of all listed shares — can be entrusted with such electronic accounts, without compromising security, privacy or ease of operations, why can't banks and small savings make use of the facility as well? While it is true that competition does generally lower price of a product or a service, the principle need not apply to record keeping just yet. The new player - whether it is Central Depository Services (CDSL) or some other — may not automatically be able to bring down costs for subscribers the way CDSL managed to do for depository services when it was created to challenge National Securities Depositories (NSDL) monopoly. The number of accounts, over which the overhead costs have to be spread, is the key factor, even if the government were to extend budgetary support to over capital costs.
In the case of the CRA built for the NPS, the cost of maintaining a permanent retirement account (PRA) will fall from the current Rs 350 to Rs 280 and further to Rs 250 when the number of accounts maintained by the CRA rises to 10 lakh and 30 lakh respectively. Some say this is a conservative estimate. But NPS alone will not be able to ensure rapid increase in account numbers. We have suggested in the past that the Employees' Provident Fund Organisation should use the existing CRA for its 4 crore members, rather than build a new, dedicated one for itself. State governments too can use the CRA of either NSDL or the incoming agency to manage pensions of their employees, even if they do not join the NPS.
