Livelihood support: ESIC reserves to help low-income workers

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April 14, 2020 12:15 AM

The government, experts point out, is charging excess amount to the employers and building surpluses under various schemes including EPF and ESIC.

The ESIC reserves are mostly invested in fixed-income instruments like fixed deposits with public sector banks (PSBs).The ESIC reserves are mostly invested in fixed-income instruments like fixed deposits with public sector banks (PSBs).

The government may dip into the huge, untied reserve funds with the Employees State Insurance Corporation (ESIC) — these funds stood at over Rs 68,000 crore at FY19-end — to give livelihood support to over 3.5 crore low-income workers, hit hard by Covid-19 pandemic and the subsequent lockdown. Use of these funds doesn’t necessitate any fiscal rebalancing and is, therefore, a much easier and more prudent option than increasing the budgetary outlays at this juncture, when the government’s revenue position is precarious, an official source said.

The ESIC reserves are mostly invested in fixed-income instruments like fixed deposits with public sector banks (PSBs).

Exporters and small manufacturing/service sector units have been seeking government assistance to bolster their efforts to provide income support to workers.

While most units paid the March salaries to the workers on the payroll, a large section of them may find it difficult to do so in April. Additionally, most say they can’t make the EPF and ESIC contributions till the current crisis is overcome and want the government to come in aid of their efforts to alleviate the distress among workers.

With its income far exceeding expenses, the ESIC has over the years accumulated huge amounts as reserve funds — at the end of FY19, this was a staggering Rs 91,447 crore, and 75% of the reserve is not earmarked for any purpose and, therefore, free. The idea is that at least a small part of these funds could be used to boost income transfers to the workers.

 

The ESIC surplus for FY19 itself was at Rs 16,227 crore, with incomes of Rs 27,313 crore and expenditure at Rs 11,085 crore. The surplus for FY18 was Rs 14,319 crore. The amount accumulated in FY20 is not immediately known, but it is understood to be close to the FY19 level.

The ESIC’s practice, experts opine, is tantamount to profiteering and is unbecoming of a government body tasked with giving low-cost insurance cover and free medical care to those earning relatively low monthly wages. The ESIC facility is available to workers earning up to Rs 21,000/month in establishments, where 10 or more people are employed. Over 12 lakh factories/establishments are under ESIC cover under the Employess’State Insurance Act, 1948.

In 2018-19, ESIC spent Rs 8,721 crore on extending medical benefits, Rs 1,171 crore on cash benefit payments and Rs 1,156 crore was administrative expenses.

With effect from July 1, 2019, the government lowered the mandatory ESIC contributions: an employee now pays just 0.75% (1.75% earlier) of wage towards the ESI kitty, while the employer contributes 3.25% (4.75% earlier). The contribution rate was brought down in 2019, after a long period of 22 years. Experts described the move as a case of “too little, too late,” given the huge reserves the ESIC has created over the
years.

To provide a breather to the organised sector that has also been adversely affected by the lockdown, the government is paying the EPF contribution of employers and employees (roughly 24% of their basic wage) for three months for units that employ up to 100 employees, 90% of whom earn less than Rs 15,000 a month. Some 80 lakh employees and four lakh units stand to gain from this move.

Also, the Employees’ Provident Fund Regulations are being changed to allow employees non-refundable advance of 75% of the amount or three months of the wages, whichever is lower, from their accounts. Families of four crore workers registered under the EPFO can tap this window.

The government, experts point out, is charging excess amount to the employers and building surpluses under various schemes including EPF and ESIC. The workers don’t get commensurate benefits either. The ESIC charges are meant to cover administration cost and not for creating surpluses, they contend.

A part of the ESI surplus funds are being used to create medical colleges and similar other infrastructure, however, this barely justifies the overburdening of workers and firms — the take-home income of over 3.5 workers entitled to the ESI benefits are hit by high ESI contribution.

The massive reserve fund of ESI is invested in fixed income instruments: Rs 75,714 crore in bank fixed deposits and Rs 15,730 crore in special deposits with the Central government as at the end of March, 2019.

The government had, with effect from January 2017, enhanced the threshold limit of mandatory coverage under the ESI scheme to a monthly wage of Rs 21,000 from Rs 15,000 earlier.

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