According to Bloomberg news, Indian trade Unions and the Marxist parties in the country have long resisted a plan to allow government employees a chance to have their own individual 401k’s, or to invest personally in mutual funds or stocks for their retirement. Rather, the unions are fixed on maintaining defined benefit plans which will guarantee 1/2 of full salary for retired government workers.
However, in the next few months, a new plan for all government workers who joined after January 2004 will be instituted. Their retirement funds will be handed over to three asset management companies. "The managers will be able to invest five percent of the money in equities and 10% in equity linked mutual funds." Much of this will flow into the Indian stock and bond markets and as time passes, these pension assets could easily help form the backbone of a rising stock market in India. Andy Mukerjee of Bloomberg wrote on April 17, 2007, "Assuming that India’s $822 billion economy grows 8% a year (the current growth rate) with 5% inflation, a $5 trillion stock market should be within India’s reach in slightly more that a decade; as much as a fifth of it may be associated with larger flows of retirement funds into equities."
Many global stock markets have benefited from a consistent and growing inflow of pension assets over the last several decades. Most of the world’s large economies have benefited from this trend. Now it looks like India’s turn.
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