When finance minister Arun Jaitley spoke, in his budget, of both EPFO and ESI having hostages rather than clients, it is not clear if even he knew the extent of how bad things are. A calculation by TV Mohandas Pai and Rajesh K Moorti shows that the overcharging by these two institutions is likely to be in the region of Rs 10,000 crore this year – and that’s after the EPFO reduced its administrative charges this year. Think of the savings for crores of low-paid workers if their monthly outgo was reduced and the headache for employees who, despite the finance minister’s budget promise, are still not free to move to other privately-run but government-approved/regulated schemes.
At even the lowered 0.85% of an employee’s salary, the EPFO ends up charging around 3.5% of monthly contributions which makes it the world’s most expensive mutual fund, more so when you consider that almost all the investments made are in government securities. While there is a case for dramatically reducing the administration charge, keep in mind the costs of the rival New Pension Scheme (NPS) and the fact that Sebi is engaged in further reducing costs of mutual funds by moving to Aadhaar-based authentication and NPCIL electronic payments. Surely, EPFO’s bloated staff costs cannot be passed on to hapless hostages – even the Public Accounts Committee has commented upon this in its latest report. While existing EPFO subscribers still can’t move to the NPS where returns are significantly higher – in one of the amendments proposed by the EPFO, even those moving to NPS were expected to continue to pay the administration charges to the EPFO! – what is more shocking is that the tax treatment for NPS has still not been equalized with that of the EPFO; those in the EPFO pay no tax on withdrawal while those in the NPS still have to. In the case of the EDLI portion of the EPFO, no changes have been proposed either to cut charges to more reasonable levels – if an individual is earning Rs 10,000, his survivors will get Rs 2 lakh under EDLI – but he has to pay Rs 600 per year for this (0.5% of salary) as compared to the PM Jeevan Jyoti Bima Yojana which also promises Rs 2 lakh on death but for an annual premium of Rs 330.
In the case of the ESI, Pai/Moorti point out the surplus collections over the years have resulted in a reserve fund of Rs 45,000 crore, a fourth of which is now being used to fund medical colleges – ESI has no mandate for this, why not just lower rates to more reasonable rates? And what happened to the FM’s promise that employees would be allowed to opt out of ESI in favour of some other IRDA-approved insurance product?