Learn from France: Sanjeev Sanyal warns of 'serious breakdown' from high pensions

Economist and policy expert Sanjeev Sanyal has cautioned against untargeted freebies and overly generous pension schemes, saying they could create long-term economic problems if not carefully managed.

Speaking in a podcast with Smita Prakash on the role of social benefits, Sanyal said, “I have always been very, very uncomfortable with freebies. But I will distinguish between freebies and safety nets. So, some amount of safety net is needed in any risk-taking culture because some of it will go wrong by definition. He added, “Taking risks isn’t only for the rich. Even starting a small shop involves risk.”

Sanyal supports targeted help for the poor to improve their social and economic position. “I’m also in favor of some passing of benefits to the poorer sections to give them the ladder to climb up. That also I have no problem with.” He acknowledged that economic benefits do not reach everyone equally, so some form of assisted support is necessary. “You have to create the pathways up and some people have to be pulled up. That is fine.”

However, Sanyal criticized untargeted populist measures, citing women’s free travel in buses as an example. “It’s not targeted…whether you’re rich or poor. A poor man is as worthy of being supported on public transport as a woman. This is just a clear case of freebie.” He said subsidies can be justified when carefully calibrated to economic realities, but populist measures risk creating unnecessary financial burdens.

Sanyal also warned that generous pensions for civil servants could strain future generations. “You have to be very, very careful about doing this because you’re effectively creating liabilities for the next generation…after 25 years…the population of working age will shrink and you will be loading that shrinking working population with the pensions of the previous generation, and they will not be able to pay it.” He cited Europe as an example, saying, “In France today, there are more people getting pension than it has people working. You will have a serious breakdown if you do not think these through.” 

He advised young civil servants to manage their expectations, “Through your working life you will be taxed over the next 35 years, but when you turn up at the top of the queue for getting it, be absolutely clear that there will be no money to pay you.”

Addressing concerns about states struggling to fund infrastructure and growth, Sanyal said resources are available but must be used wisely. “The amount of resources that are now available to states, whether it’s from their share of GST or other sources, or from opportunities such as monetizing land…can be utilized effectively,” he said.