Opinion Tattered social security nets for working poor: Higher pensions available only to a small section of the labour force

In another move, following a November 2022 judgment of the Supreme Court, the Employees Provident Fund Organisation (EPFO), has again opened the doors for higher pensions for employees with salaries beyond the current cap. The EPFO pension contributions are capped in relation to a salary of Rs 15,000. Beyond that, employees with higher salaries (the so-called missing middle), and their employers, could, with permission of the EPFO, contribute a higher amount to the EPFO for higher retirement savings, but the pension contribution was still pegged at the salary cap of Rs 15,000. Now, a higher employer contribution (8.33 percent of the actual salary) can be credited to the Employees’ Pension Scheme (EPS). This would reduce the employer’s contribution to the retirement fund to 3.67 per cent, but would entitle the employee to a larger pension amount.

Apart from these, a trend towards higher social security coverage of formal sector employees has been initiated over the last decade, through reforms, in the two major social security organisations in the country viz. the EPFO, and the Employees State Insurance Corporation. Digitisation, the use of online platforms, and the provision of unique identity cards, and incentives, have made enrolment and compliance easier for both employers and employees, bringing even a large number of contract employees within the social security fold.

However, all these moves are restricted to improving or expanding the social security available to a small percentage of the workforce, most of whom are already in the higher income quintiles. While 28.8 per cent of the workers in the highest quintile had some social security, this was only 1.9 per cent for the poorest 20 per cent workers. Together, they still do not breach a tenth of the total workforce which is estimated to receive any social security, assisted by an employer contribution. This overwhelming proportion of the workforce is either provided nominal and inadequate protection through administrative handouts or not at all.

Old age protection is a vital dimension of social security. Pensions for the old-aged poor were brought in through the National Social Assistance Programme (NSAP) way back in 1995-96. Only old-aged poor individuals, identified through the then prevalent below-poverty line surveys, without an able-bodied earner in the household were eligible for a small monthly pension of Rs 75. In the nearly three decades that have elapsed, the nominal monthly pension under the NSAP has been only Rs 200, which is below a day’s minimum wage. The total amount towards the pension component of the NSAP, for all its components, has steadily declined in real terms (in nominal terms it was Rs 2,069 crore in 2013-14 and Rs 1,722 crore in 2022-23), while the coverage has remained stagnant. Since 2015, the central government has also floated four contributory pension schemes, with some support for initial contributions. These schemes are still to take off in any significant fashion. The total government contribution to these four schemes was Rs 1,210 crore in 2022-23 (RE) and budgeted at Rs 974 crore in 2023-24.

Health protection is another vital dimension of social security. Since 2007-08, the main route for protecting poorer workers and their families has been publicly-funded health insurance programmes. The strengthening of the public health system has received much lower priority than it deserves. In 2017-18, 15.53 per cent of households reported being covered by a health insurance scheme, of whom 11.7 per cent were covered by a publicly-funded scheme. In 2019-21, NFHS-5 reported an increased coverage of individuals in 41 per cent of households, of whom 46 per cent were covered by a state scheme and 16.6 percent by the central scheme. In 2017-18, households incurred an estimated expenditure of Rs 78,856 crore on hospitalisation (excluding childbirth), out of which Rs 7,141 crore only (9.33 per cent) was reimbursed. For the top 50 per cent of households, 11.67 per cent of hospitalisation expenditure was reimbursed, whereas this was only 3.9 per cent for the poorest 50 per cent of households. Fresh estimates of the impact of higher coverage under schemes on out-of-pocket expenditure are not available. The PM Jan Arogya Yojana, launched in 2017, provides a hospitalisation cover of up to Rs 5 lakh, purportedly to 50 crore households. The total outlay on the scheme rose from Rs 1,997 crore in 2018-19 to Rs 2,680 crore in 2020-21, and to Rs 6,427 core in 2022-23, which is a tiny fraction of the total estimated out-of-pocket expenditure, even in 2017-18.

Apart from low and inadequate coverage and serious issues of wrongful inclusion/exclusion, these and other social security schemes have poor accountability mechanisms and no statutory backing. The Code on Social Security 2020 aims at providing a statutory framework for universal social security. It devotes two chapters to the extension of social security to construction workers, gig and platform workers, and all other unorganised workers. Meanwhile, the e-Shram platform set up by the Ministry of Labour has enrolled nearly 30 crore workers. The problem with the code is that it does not provide a clear blueprint for universal social security, achievable within a definite time frame. While cess-based funding would be available for construction workers, and perhaps for gig and platform workers, a financing framework is not available for the rest.

A universal scheme for social security will, most likely, have both non-contributory and contributory components. The National Commission for Enterprises in the Unorganised Sector had shown that a minimum level of social security for all workers was financially feasible and could be rolled out in a time-bound manner. Indeed, since then, several estimates have shown the financial feasibility of such a scheme.

It may be remembered that the Indian Constitution, through various Articles in the chapters of Fundamental Rights and Directive Principles, has all the ingredients of universal social protection. India has ratified the UN Covenant of Social, Economic and Cultural Rights of the United Nations which recognises, inter alia, the right of everyone to social security including social insurance. India has also accepted ILO Recommendation 202 on the Social Protection Floor. The ILO Recommendation clearly lays down the essential ingredients of a Social Protection Floor, which can be tailored to country-specific circumstances. The rationale for universal social security flows not only from a rights and justice perspective, but also because it can contribute to higher productivity and equitable and sustainable growth. Given this background, and India’s current level of development, working people do not need handouts and ad hoc social protection measures but a comprehensive social security architecture in which the entitlements of the poorest are clearly prioritised. It would be a pity if other issues are allowed to deflect from this important goal.

(The writer was a member of the National Commission for Enterprises in the Unorganised Sector)