Speaking at an event hosted by a big media company this week, Anurag Thakur – the Union minister for youth affairs who doubles up as information minister – claimed that India suffers from a ‘slave mentality’ as it still ‘depends on foreign ratings’. This was his way of reacting to an unflattering report on unemployment in India published by the Institute of Human Development (IHD), an independent, Delhi-based think-tank, which like many such institutions, often receive funding to undertake research projects of national importance. The IHD has just published its third Employment Report (2023). Just because it obtained financial support from a United Nations agency, the ILO, does not make its findings a “foreign’ rating. It is a report written by Indians using the government’s own data, and so the reference to any mentality is totally a red herring, designed to divert attention from the real issue of the employment crisis that India faces. The report is written by professionals and well-known experts in the field, and hence its credibility cannot be questioned.
Having settled this simple issue, let us turn to some actual critiques that have been made so far of its basic findings. The minister, like so many government economists, has claimed that there is no employment crisis because EPFO (Employee Provident Fund Organization) data, published by the National Statistical Office of the Ministry of Statistics and Programme Implementation, Government of India, shows that new EPFO registrations have been increasing.
“64 million people have registered with the EPFO,” said Thakur. “It is a bigger number than the population of Australia, New Zealand, and many other countries.”
Also read: Ten-Year Record on Employment: Does the Reality Match the Promises or Claims?
The myth that EPFO data shows rising jobs
This kind of claim has been made earlier, and we (and other statisticians and economists, who have served in senior positions in the Ministry of Statistics and NSO) have refuted such claims before. For example, an earlier assertion, now being repeated ad nauseam by ministers, is that the Indian economy added 52 million new formal jobs during FY20 and FY23 based on EPFO, ESI and National Pension Scheme database. Such claims that EPFO data shows the creation of new jobs are patently false. 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. EPFO data of the last four years suggest that net new subscriber addition during FY20-23 was 4.86 crore, consisting of first-time subscribers and those who rejoined after a discontinuity. If this is adjusted for net new payroll data (first job/fresh job) data, the volume of net new additions would be 2.27 crore during these four years.
NPS data showed 8.24 lakh new subscribers in FY23 (both central and state). In the last four years’ data, around 31 lakh new subscribers joined the NPS. Taking into account, the EPFO and NPS data, total new job creation is 2.27 crore plus 31 lakhs, or 2.58 crore in last four years. The government claim based on the same data is 5.2 crore, which is almost double this 2.58 crore number.
Photo: Andrea Leopardi/Unsplash
What explains this exaggeration? A closer look at the EPFO data shows that for FY 20-23, the net new EPF subscriber was 4.86 crore which consisted of new payroll (first-time enrolment) and second payroll (rejoined/resubscribed) and formalized payrolls. According to net new payroll adjusted for re-joined/resubscribed members and formalization, the actual net new payroll was 2.27 crore during FY20-23. The figure attributed to rejoined/resubscribed members stood at 2.17 crore. Thus, the net formalization figure stood at 42 lakhs (4.86-2.27-2.17).
Thus, even if we take the EPFO data at its face value, new job creation should be 2.27 crore during FY20-23 and formalization of 42 lakhs.
However, the claim of new job creation is itself fallacious. The reasons are as follows:
First, a part of the increase in net enrolment comes from the enrolment of contract workers in those establishments where the EPF & MP Act 1952 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, 1952. This became mandatory following the judgement of the Hon’ble Supreme Court of India, in the matter of M/S. Pawan Hans Limited and Others. v. Aviation Karmachari Sanghatana and others. The judgement ( January 17, 2020), under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (or ‘Act’) clarified that contractual employees, who draw wages/salary directly or indirectly, are entitled to the benefit of provident fund.
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. In that sense, their engagement is getting formalized. Further, new establishments might be added to EPFO coverage as the number of employee engagement reaches the 20 thresholds. However, these are in no way an addition to employment. At best, this can be seen as formalization 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 reorganization of data within the EPFO data architecture. From April 2018, EPFO has been releasing payroll data covering the period from September 2017 onwards. In 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-joining as members, are 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 reorganizing within the existing beneficiaries and inclusion of existing contract workers are adding to the numbers. The outcome warrants a more nuanced interpretation rather than simplifying that there is 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. No requirement to visit the EPFO office. This has helped new registration. Also, EPFO has introduced portability of EPF accounts in the sense that even if the employer changes, the enrolment number remains the same. 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.
Fourth, as establishments earlier having less than 20 workers, presently come under the purview of the EPF Act, because regular employees increase to 20 or more, the entire employee count comes under the EPFO new payroll data. Suppose, an establishment has 19 employees, which will not attract EPF provisions. Now one regular employee joinsw, and the establishment comes under EPF provisions. Now, it would be 20 new fresh registrations in EPFO payroll data, whereas in reality addition to new employment is only one. Projecting an entire increase in fresh enrolment as new employment is a clear case of exaggeration.
A similar logic applies to NPS figures. NPS is predominantly a formal sector entitlement and possibilities are high that those who are enrolling now in NPS, were already in employment. Anyways, NPS additions are not that high.
Two points can be made here. First, the government claim of 5.2 crore new jobs is clearly exaggerated as this includes the re-joined or resubscribed beneficiaries of EPFO. Even net new enrolment of 2.27 crore can not taken in entirety as new job creation as a significant part might already been in employment and getting formalized in the process.
In the past few years, the government has devised incentive schemes which encourage formalization of the informal. The Indian labour market is predominantly informal. About 90 percent of the labour force is informal. Given this reality, accounting for new job creation using EPFO is a hard task – and in future such claims should be avoided by government.
Ludicrous claims that ‘rising’ LFPR and WPR and ‘falling unemployment’ rates of PLFS denote the great ‘economic recovery post-Covid’
In addition, the poor understanding of EPFO data, there is equally appalling inability to understand the reality behind the rising LFPR/WPR and Unemployment Rate (UR) falling (the UR is the difference between those looking for work (LFPR) and those finding work (WPR). The claim: the LFPR increased by 8 percentage points (50 to 58%) between 2017-18 and 2022-23, while it decreased by nearly 8 percentage points (63.7% to 55.9%) between 2004-5 and 2011-12. WPR rose (as WPR tends to track the LFPR) and thuse UR fell.
Also read: Lowest EPFO Registrations in 2 Years Signal Formal Job Market Decline
Reality: What this claim overlooks is that LFPR/WPR both rose in the last 6 years as Unpaid Family Labour rose sharply, in both rural and urban areas. This is the worst form of employment. In fact, internationally compliant definitions donot regard this as ‘employment’. As CMIE used internationally compliant definitions, it does notshow a rise in LFPR/WPR.
What this claim also fails to noticeis that there is a fall in LFPR from 55.9% in 2011-12 to 50% in 2017-18. That is because of an actual increase in ‘discouraged labour force’, or Not in Education, Employment and Training, who had stopped looking for work as they had found it. That is how 2017-18 was the year of the highest open unemployment rate in India’s history.
As for the decrease in LFPR/WPR during 2004-5 and 2011-12, thathappened for a very good and positive reason: millions of children (6-14 year olds), who were earlier child labourers and out of school, entered school. That is how net primary enrolment shot up to 97% in 2007; thereafter upper primary also got universalized. In fact, thereafter the secondary enrolment shot up from 58% in2010 to85% in 2015, thus reducing the LFPR/WPR further. In fact, the secondary school children are in working age (over 15), and their entering school, especially of girls, was the main reason for LFPR/WPR dropping. These were all positive development for the childrens’ future as well as for the economy as a whole.
The lack of ILO-compliant definitions by NSO has the following effect: NSO regards unpaid family labour as employment, which CMIE does not. Nearly 100 countries of the world do not treat unpaid family labour as employment, and despite the Standing Committee on Economic Statistics (I was a member 2020-2022), an expert body advising NSO for the last several years to revise its stand, it failed to do so. The result: the >50 million increase in unpaid family labour in the last 6 years (as NSO shows) leads to a rising Labour Force Participation Rate and Worker Participation Rate, along with falling unemployment – the opposite of what the CMIE data shows, correctly. Hence, government economists continue to spin the narrative that employment has recovered post-COVID. Thus, the rising LFPR/WPR and falling WPR are all three mere fictions; the hurrahs of the government economists and ministers would seem cruel to those suffering the distress that these numbers hide – if only those suffering could hear the cheers of joy of the media hype around these numbers.
Worse still, 60 mn workers were added to agriculture between 2019-20 and 2022-23, partly on account of the reverse migration after COVID-19 (first wave 2020, second Delta wave 2021, third Omicron wave 2022). That meant a reversal of the structural change in the employment structure that had been occurring for the preceding 15 years since 2004-5. The increase in agriculture led to rise in self-employed share from 53% in 2019-20 to 58% in 2022-23 – partly due to own account workers (in farming) increasing, and partly as women rejoined agriculture (as Unpaid Family Labour, as noted earlier) – both a disastrous development. It is disastrous because a rise in agriculture reverses the structural change. Simultaneously, for five years from 2016, manufacturing employment and contribution to GDP fell (the latter from 17% of GDP, consistent since 1992).
Santosh Mehrotra is a Visiting Professor at the Centre for Development Studies, University of Bath, UK.