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Business News/ Opinion / Fresh hope for the India-US social security agreement
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Fresh hope for the India-US social security agreement

An India-US agreement will also favourably impact the cost of employment for both sets of employers

Shyamal Banerjee/MintPremium
Shyamal Banerjee/Mint

A social security agreement with the US, it is believed, was on Prime Minister Narendra Modi’s agenda on his recent US trip. Whether or not he was able to get to it remains unknown at the time of writing this article.

Those of us who have been following the story of India’s chase of the US to enter into a pact on social security know that it has been a long-drawn one—over a decade. This started as the then government of India became empathetic to the demand of Indian employers deploying employees to work in the US and having to foot the bill of the US social security without any reciprocal benefit as the employees would not meet the criteria of the mandatory number of years of US employment. Estimates by various bodies, such as Nasscom and so on, put the quantum of this sunk cost in the region of $1 billion. When India first started to seek US’ approval for the social security agreement, the US declined to play ball as it said that India had no matching legislation for it to really agree to a quid pro quo. To be able to build up some negotiating power, India armed itself with a new provision in its existing provident fund scheme—mandatory provident fund contributions for international workers—effective 1 November 2008.

The international workers provision required non-Indian passport holders (read foreign passport holders) working for a covered establishment (entity registered for provident fund coverage) to be subject to mandatory contributions into the provident fund scheme and the ability to withdraw only on reaching the age of 58 or retirement, whichever is later. The only exception being, where the foreign national comes from a country with which India has an in-force social security agreement and has active continued social security coverage in the home country.

This has helped India sign social security agreements with many countries around the world—particularly in Europe—that have systems similar to the US. India has also signed social security agreements with Canada and Japan, and is in the process of signing one with Australia. So, all in all, India has an impressive tally of 12 signed and active social security agreements, and is in the process of concluding discussions on many more. But it has failed to get the US on to a negotiation table and continues to chase this social security pact (also called a totalization agreement) even as the US continues to be a top destination for Indian outbound employees.

Need for the agreement

Such an agreement will help achieve many things. Those choosing to continue with their home country social security systems can contribute in the home country only. They may do so by obtaining a certificate of coverage and be exempt from the host country’s social security contributions. For example, an Indian continuing in the provident fund scheme can obtain a certificate of coverage and be exempt from contributing into the US social security. Likewise, a US national choosing to continue in US social security will be exempt from provident fund contributions in India.

Also, those contributing into the host country’s social security systems portability of benefits will be able to get the benefit of contributions made by virtue of totalization of number of years of service in the home and host country. For example, an Indian worker contributing into the US social security but working in the US only for seven years, will be able to aggregate her total working period by adding the number of years in India to come up to the criteria of 10 years of working to be eligible for US social security benefits.

Likewise, a US citizen can also contribute into the Indian provident fund and be eligible to withdraw the deposit on completing the Indian assignment.

An India-US agreement will also favourably impact the cost of employment for both sets of employers.

The need for a government level push from India will remain, as the balance of favour in getting into this social security agreement is towards India since the number of Indians outbound to the US is much higher than the the number of US citizens coming to work in India. Of course, this may change if the promised billions of dollars of US investment is on its way to India as that may bring more US workers to India.

We do hope that Modi’s US entourage was able to have some side conversations on the recently concluded trip about the elusive US- India agreement. The new found closeness between the two governments will pave the way for making this dream of a India-US social security agreement a reality.

Sonu Iyer is partner and national leader-human capital services, EY.

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Published: 20 Oct 2014, 08:41 PM IST
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