PF contributions slipping,cloud over ‘pay-as-you-go’ model

The trend,which was first noticed in 2010-11,is now being confirmed as the EPFO finalises its balance sheet for 2011-12.

Written by Surabhi | New Delhi | Published:June 20, 2012 1:11 am

Contributions to the Employees’ Provident Fund Organisation (EPFO),the country’s largest and only social security fund for formal sector workers,has slipped into negative territory for the first time in years,with officials and analysts saying that it could be yet another red flag for an already sagging economy.

The bad news is largely due to the fact that many workers have been pushed out of the mandatory EPFO net as a number of states have raised minimum wages,even though the Rs 6,500 mandatory wage limit for PF contributions in force since 2001 remains unchanged. Besides,with an increasing number of workers coming into the job force as contractual employees,they are out of the PF net.

With a Rs 5-lakh crore corpus,the fund is still the country’s second largest non-bank financial institution after the Life insurance Corporation of India. But officials feel a crisis could be brewing behind the numbers as contributions have begun to dip over the past two years,while enrolments are also turning sluggish. The trend,which was first noticed in 2010-11,is now being confirmed as the EPFO finalises its balance sheet for 2011-12.

In 2010-11,the EPFO registered a growth of just under 5 per cent in enrolment of new members to take the total membership to 6.15 crore,as compared to a growth of nearly 25 per cent in the previous fiscal. More worryingly,contributions to the Rs 4.7-lakh crore corpus dipped by close to 3 per cent in 2010-11,as compared to a whopping 70 per cent growth in 2009-10. This massive jump,officials said,was in part due to the large numbers of workers hired temporarily in connection with the Commonwealth Games. ( See Chart)

A dip in contributions could also,in the long term,put a question mark over the EPFO’s current model of functioning as a ‘pay-as-you-go’ system,where the fund uses its capital to service returns that are due. In practical terms it means that payments to current beneficiaries are taken care of through fresh contributions by way of new enrollments into the system.

“The numbers for membership and collections that are being collated for 2011-12 are even more disappointing. The decline in collections is also visible in 2011-12,” an EPFO official said,adding that the final numbers would be available by next month.

“Minimum wages in most states are way above Rs 6,500. Consequently,the lowest strata of workers who will be in the most need for social security are being pushed out of the scheme,” the official pointed out. For instance,the Delhi government in April this year raised minimum wages for unskilled workers to Rs 7,020 per month and for semi-skilled workers to Rs 7,748 per month.

But under current guidelines,workers earning upto Rs 6,500 per month in organisations with over 20 employees,are mandatorily part of the scheme. Those earning over this threshold can join the EPF voluntarily.

“A lot of the workforce has also become contractual and don’t have proper PF accounts,” a former EPFO official said. Some inoperative accounts have also been shut down since interest payment was stopped,leading to some decline in contributions,he explained.

The Labour Ministry contends that the Finance Ministry has not taken up its proposals to increase the wage ceiling for PF deposits. “Over the years,we have sent numerous proposals to revise this limit. But the Finance Ministry has left them hanging due to the financial implications involved,said one official. The government currently provides a susbidy of 1.16 per cent of salaries (for a maximum of Rs 6,500 per month) to the EPF,which is used for payouts to the provident fund and the related Employees’ Pension Scheme. Increasing the wage cap,would entail a higher subsidy payout for the Centre as well.

SHELVED

Alfa Infraprop,Srikakulam 2,640

Ellora Paper Mills,Tirora 2,640

Kenita Power,Nellore 1,960

Krishnapatnam Power,Nellore 1,800

Sheshadri Power,Mahabubnagar 1,320

Simhapuri Energy,Nellore 1,320

Empee Power & Infra,Nagapattinam 1,320

Pragdisa Power,Nellore 1,320

North Chennai Power Co,Tiruvallur 1,200

Shree Renuka Energy,Vantamuri 1,050

Prakash Industries,Hathneora 625

TOTAL CAPACITY 17,195

ON HOLD

J R Power Gen,Angul 1,980

AES Naganadu Power,Nagapattinam 1,400

Banas Thermal,Vijayraghavgarh 1,320

Astarc Power,Umer Taluka 1,320

Adhunik Power,Kahalgaon 1,320

India Power Corp,Sangrampur 1,320

Arissan Power Ltd,Banka 1,320

Jindal Steel & Power Ltd,Nipania 1,320

VISA Power Ltd,Brahmanabasta 1,320

Mahanadi Aban,Talcher Town, 1,320

Sindya Power GenCo,Nagapattinam 1,050

TOTAL CAPACITY 14,990

All figures in MW

Source: CEA,Ministry of Power

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