INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

EMPLOYEES PROVIDENT FUND SCOPE TO WIDEN

IF YOU can't fix it, stretch it, anyhow. Even as the rickety social security mechanism reform for workers stays on hold, the government is planning to expand its coverage by amending the Employees Provident Fund and Miscellaneous Provisions (EPF&MP) Act. The proposal is to expand the list of industries covered by the Act to all production units that employ at least 10 workers.

At present, the EPF&MP Act applies to establishments in 180 identified sectors. Within these, it covers those institutions that employ at least 20 workers and those employees whose wage does not exceed Rs 6,500 per month. It is now proposed to remove the requirement that an industry be notified in a schedule under the Act for it to be brought under its scope. Further, the unit's qualifying threshold size — in terms of the number of workers employed — is to be brought down from 20 to 10. Also, the Rs 6,500 wage ceiling will be removed so that all employees, regardless of their sector of work and payscale, be brought under the Act.

The changes are proposed to be made effective beginning 2007-08. “The implementation of such a measure will increase the penetration of the existing schemes and expand the membership significantly,” contends a labour ministry note on social security issues in the runup to charting a road map for the 11th Plan. For EPFO, the two proposed measures would mean building up of “suitable capacity” to service accounts and handle the additional workload.

But that could be only one of the challenges. The real key to the success of a sustained coverage of new employees in new establishments would be the speedy issue of the unique National Social Security Number (NSSN) to the fund's over 24 million subscriber members. Thus far, the ‘Re-inventing EPF, India ' project has generated 28,78,593 unique NSSNs of the over 29.04 lakh records processed. That is only a small fraction of the total subscribers. The unique NSSN is expected to function as a lifetime social security number for the member.

EPFO brought 38,445 new establishments within the purview of the EPF Act in 2004-05 compared to only 25,878 establishments during 2003-04. That represented a 48.56% increase in coverage of new establishments. Up to 10.18 lakh new subscribers were enrolled during 2004-05, of which 8.83 lakh subscribers were enrolled in the unorganised sector. The moves built up the the Organisation's resources by 17.03% to Rs 1,99,015.39 crore including unexempted Provident Funds. But with the issue of NSSN to all members, the figures are likely to improve dramatically in a sustained manner.

In turn, the moves will increase the investible resources of EPFO which, despite being the industry leader in the Provident Fund & Pension business, still only caters to only a fraction of the total workforce.

EPFO has been struggling to give a return of even 8.5% on the workers' savings entrusted to it, thanks to investment that is restricted to debt. Higher returns possible from the stock market have been eschewed so far, due to political resistance. Again, pension reform, designed to let workers' savings be managed by professional pension fund managers in an optimal fashion, remains stalled due to resistance by the Left parties.