The Union Ministry of Labour and Employment has claimed that 6.2 crore net subscribers joined the Employees’ Provident Fund Organisation (EPFO) database between September 2017 and March 2024. This is cited as a reinforcing argument in supporting the government’s claim that more than 8 crore employment opportunities were created between 2021-2024. However, the relation between net enrolment in EPF and job creation is not that straight forward.
Net 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’s data architecture. Since April 2018, the EPFO has been releasing payroll data covering the period starting from September 2017. In the monthly payroll data, the net monthly payroll is calculated by counting the members joining the EPF for the first time through Aadhaar-validated Universal Account Numbers (UAN), existing members exiting EPF coverage, and those rejoining after previously exiting.
In such a scenario, it will be difficult to attribute the net increase in enrolment entirely to new employment creation. Both reorganising within the existing beneficiaries and the inclusion of existing contract workers are adding to the numbers. The outcome warrants a more nuanced interpretation rather than simply declaring that there is a great spurt in employment generation as postulated by those in the government.
The moot point here is that net new EPF enrolment might not always signify job creation. That may include those who were working earlier but not under the EPF coverage. Merely bringing those under the EPF coverage for the first time is a welcome development towards formalisation but can not be cited as new job creation.
What does EPF enrolment entail?
As per the The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, if an establishment has 20 or more employees during the 12 preceding months, it attracts the provisions of the Act. For establishments having less than 20 employees, an EPF subscription is not required. In India, EPFO and Employees’ State Insurance Scheme (ESI) coverage act as a proxy for formalisation. The threshold for ESI is 10 or more employees. Any establishment engaging 10 or more workers is considered part of the formal sector.
However, in this case, a count of 10 or more only accounts for regular or permanent employees. An establishment may engage a large number of workers, but the number of regular or permanent employees might be kept low, with other workers classified as contract or casual employees. Even if these establishments are under the EPFO’s purview, the number of subscriptions is limited to regular employees. Contract and casual workers are excluded, considered as informal workers engaged in the formal sector, and are not subscribers under the EPFO.
Now, over time, these contract or casual workers might be extended the benefit of an EPF subscription. This will be seen as fresh or new enrolment in EPFO data, but they were already employed. In that sense, their engagement is getting formalised. Further, new establishments might be added to EPF coverage as the number of employee engagement reaches the 20 thresholds.
This has become mandatory following the Supreme Court judgement in the matter of M/S. Pawan Hans Limited and Others. v. Aviation Karmachari Sanghatana and others. The judgement dated January 17, 2020, under the EPF Act, 1952 clarified that contractual employees, who draw wages/salary directly or indirectly, are entitled to the benefit of provident fund.
In the past few years, the government has devised incentive schemes which encourage formalisation of workers. That might give some positive results, but construing that as job creation is a problematic proposition. In this context, net new enrolment of 6.2 crore between 2017-2024 can not be seen, in entirety, a result of the government’s job creation efforts.
Overall, the government claimed that during the period 2021-24, the country witnessed job creation to the tune of 7.8 crore, making it roughly 2 crore on an average every year. This claim is based on the KLEMS (capital, labour, energy, material and services) database. This is further substantiated by EPFO net enrolment data and the Periodic Labour Force Survey (PLFS) data. The last four years’ employment growth rates were 5.1% in FY21, 3.3% in FY22, 3.2% in FY23 and 6.0 in FY24.
However, a scrutiny of PLFS data clearly shows that much of the employment growth happened in the agriculture and self-employed category in the informal sector. Agriculture already has three times more people engaged in the sector than warranted. The agricultural sector’s contribution to the GDP is less than 15% but its employment share is about 45%. Addition to employment in agriculture is a kind of reversal of structural transformation.
India experienced a decline in labour force in agriculture in absolute sense during 2009-2012. However, after the pandemic, livelihood generation predominantly happened in the agricultural sector. This is clearly adding to under-employment in agriculture. It signifies a distressing situation as people are falling back to farm activities for mere economic survival. Some, who have migrated to urban centres in search of livelihood, are surviving by doing petty economic activities on their own. The quality of employment generated is very poor.
Given these circumstances, there is little reason to boast about the impressive employment generation in the last four years. First, such claims are unsubstantiated by data, and second, the jobs created are mostly of very low quality.
Santosh Mehrotra was professor of economics at JNU till 2020.
