The threat of Covid-19 that rose in early March resulting in nationwide lockdown in the final week of the month had an immediate, material adverse impact on jobs creation if not jobs themselves, going by the Employees Provident Fund (EPF) payroll data.
The threat of Covid-19 that rose in early March resulting in nationwide lockdown in the final week of the month had an immediate, material adverse impact on jobs creation if not jobs themselves, going by the Employees Provident Fund (EPF) payroll data. Net addition to the EPF subscriber base fell sharply from 9.99 lakh in January and 10.21 lakh in February to 5.73 lakh in March.
The Centre for Monitoring Indian Economy has recently reported that the unemployment rate in the country shot up to 27.1% in the week ended May 3, the highest rate ever, owing to a surge in the labour participation rate from the previous week. It also prognosticated that a further rise in the unemployment rate for the subsequent week, since the lockdown continued.
For 2019-20 (April-March) as a whole, the EPF subscriber base saw an average monthly net addition of 6.54 lakh, higher than the 5.1 lakh in 2018-19 and far above the 2.21 lakh during the last seven months of 2017-18.
Of course, the jump in EPFO payroll numbers isn’t wholly attributable to ‘new jobs’; the accelerated expansion of the subscription base is partly driven by policy support to formalisation of the economy, including Pradhan Mantri Rojgar Protsahan Yojona (PMRPY), the window for which closed on March 31, 2019.
But the fact that people in the 18-21 years age bracket followed by those of 22-25 years have the highest shares (32.31% and 28%, respectively) of net EPF subscribers added in FY20 is proof that new jobs indeed got created at a faster pace in the year, than the previous year, which saw a bigger annual rate of increase in the EPF base. And with the lockdown, jobs situation deteriorated all of a sudden.
In the wake of the liquidity crunch faced by companies and other business units, the government gave them the option to defer their monthly statutory contributions to the retirement fund body to a later unspecified date; but they are still required to file the electronic challan cum return on time, which will reflect the payroll on time.
The EPFO has started releasing the data for subscription since April 2018. Analysts caution that the data may not be robust enough to draw immediate conclusions from; by the government’s own admission, “since the number of subscribers are from various sources, there are elements of overlap and the estimates are not additive”.
One curious aspect of the EPFO payroll data is the high frequency of subscribers stopping contributions. For instance, as many as 109 lakh people ceased subscriptions in FY20, compared to 110 lakh new subscribers joining during the year. Of course, 78 lakh workers stopped contributing to the EPF rejoined in the period, resulting in net additions of 78.58 lakh.
Such high incidence of people quitting EPFO subscription cannot be explained by regular retirement alone. Demonetisation may have been to blame to an extent, during 2017-18 and 20118-19. Also, a section of establishments is averse to keeping the employees for longer periods to escape legal obligations like payment of gratuity. It is also a practice, a person familiar with the government’s EPF data methodology said, among some businesses to float new companies to rein in their manpower costs.
However, a decline in the pace of new subscribers from an average of over 12 lakh a month in September-March FY18 to 11.62 lakh a month in FY19 and to 9.2 lakh a month in FY20 signals the saturation of the current formalisation drive. As the table shows, the policy drive has resulted in an increasing number of people rejoining the EPF after ceasing to contribute. Firms are indeed being forced to ‘formalise’ the payrolls.
Since the informal sector in the country is huge, innovative policies may be needed to further accelerate the formalisation process.
The EPFO started releasing the data for subscription since April 2018, for the period since September 2017. The EPF subscribe base consists of over 6 crore people.