A recent report (SBI Ecowrap) claimed that the Indian economy added 52 million new formal jobs during FY20 and FY23 based on Employees’ Provident Fund Organisation (EPFO) and National Pension Scheme data. Such claims of creation of new jobs have been made repeatedly in the last few years. However, there are inherent fallacies in the use of EPFO data to substantiate these claims.
The government has been releasing monthly payroll data of EPFO, ESIC and NPS since 2018. The EPFO data of the last four years suggest that net new subscriber addition during FY20-23 was 48.6 million, consisting of first-time subscribers and those who rejoined after a discontinuing. If this is adjusted for net new payroll data (first job/fresh job) data, the volume of net new additions would be 22.7 million during these years.
The NPS data showed 824,000 new subscribers in FY23 (both central and state). In the last four years’ data, around 3.1 million new subscribers joined the NPS. No Employee State Insurance Coporation (ESIC) data is cited by the SBI research. Taking into account, the EPFO and NPS data, total new job creation is 22.7 million plus 3.1 million, or 25.8 million in te last four years. The claim in the present, based on the same data, is 52 million, which is more than double the 25.8 million figure.
What explains this exaggeration? A closer look at the EPFO data shows that, for FY20-FY23, the net new EPF subscriber was 48.6 million, which consisted of new payroll (first-time enrolment) and second payroll (rejoined/resubscribed) and formalised payrolls. According to net new payroll adjusted for re-joined/resubscribed members and formalisation, the actual net new payroll was 22.7 million during FY20-FY23. The figure attributed to rejoined/resubscribed members stood at 21.7 million. Thus, the net formalisation figure stood at 4.2 million. Thus, even if we take the EPFO data at its face value, new job creation is a much lower number than claimed.
However, even this new job creation figure is itself fallacious. The arguments are as follows.
First, a part of the increase in net enrolment comes from the enrolment of contract workers in those establishments where the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act) becomes applicable. If you are an employer that employs 20 people or more, it is mandatory to register under EPF. All contractual employees of such establishments employed directly or through a contractor, or both, are required to be enrolled under the EPF & MP Act. This became mandatory following the judgment of the Supreme Court of India, in the matter of M/S. Pawan Hans Limited and Others. v. Aviation Karmachari Sanghatana and others. The judgment (January 17, 2020) clarified that contractual employees who draw wages/salary directly or indirectly are entitled to the benefit of the EPF.
Now, over time, a part of the contract or casual workforce might be extended the benefit of an EPFO subscription. This will be seen as fresh new enrolment in EPFO data but they were already employed. Further, new establishments might be added to EPFO coverage as the number of employee engagement reaches the 20 threshold. However, these are in no way an addition to employment. At best, this can be seen as formalisation of employment rather than new job creation.
Second, payroll data is not a proxy for employment generation and by no means an employee list. Payroll data is a kind of reorganisation of data within EPFO data architecture. From April 2018, EPFO has been releasing payroll data covering the period from September 2017 onwards. In the monthly payroll data, the count of members joining EPFO for the first time through Aadhaar validated Universal Account Number (UAN), existing members exiting from coverage of EPFO, and those who exited but re-joined as members, is taken to arrive at net monthly payroll. As such, it is difficult to attribute the net increase in enrolment entirely to new employment creation. Both reorganising of existing beneficiaries and inclusion of existing contract workers are adding to the numbers. The outcome warrants a more nuanced interpretation rather than simplifying it as being a great spurt in employment generation.
Third, a part of the net increase can be explained in terms of greater ease of registration in recent times. Registration is now online, free of cost and hassle-free. There is no requirement to visit the EPFO office. This has helped new registration. Also, EPFO has introduced portability of EPF accounts. Subscribers of EPFO, even when changing jobs, are increasingly opting to transfer their funds from their previous PF account to their current account instead of submitting claims for final settlement. This may be attributed to various e-initiatives taken by EPFO for seamless service delivery. Again, this has nothing to do with new job creation.
As establishments earlier having less than 20 workers come under the purview of the EPF Act once the number of regular employees increases to 20 or more, the entire employee count comes under the EPFO new payroll data. Suppose, an establishment had 19 employees and did not attract EPF provisions. Now, with one regular employee joining, the establishment comes under EPF provisions. It would then have 20 new fresh registrations in EPFO payroll data, whereas in reality addition to new employment is only one. Projecting these 20 fresh enrolments as new employment is exaggeration.
Similar logic applies to NPS figures. NPS is predominantly a formal sector entitlement and the possibility is high that those who are enrolling now in NPS were already in employment. Anyway, NPS additions are not that high.
Two points can be made here. First, the claim of 52 million new jobs is clearly overstated as this includes the re-joined or resubscribed beneficiaries of EPFO. Even the net new enrolment of 22.7 million can’t be entirely taken as new job creation as a significant part might already been in employment.
In the past few years, the government has devised incentive schemes which encourage formalisation of the informal sector. The Indian labour market is predominantly informal. About 90% of the labour force is informal. Given this reality, accounting for new job creation using EPFO is a hard task—and, in the future, such claims should be avoided.