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EPF extension to small firms gets political push as elections loom

EPF extension to small firms gets political push as elections loom
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First Published: Tue, Apr 22 2008. 11 10 PM IST

Extending welfare: Workers in a toymaking shop. The EPF scheme is currently restricted to establishments with 20 or more employees. (Photo: Ramesh Pathania/Mint)
Extending welfare: Workers in a toymaking shop. The EPF scheme is currently restricted to establishments with 20 or more employees. (Photo: Ramesh Pathania/Mint)
Updated: Tue, Apr 22 2008. 11 10 PM IST
New Delhi: If the Union government’s proposal to extend the benefits of the Employees Provident Fund, or EPF, to establishments employing 10 persons, and to all industries in the country, becomes a reality, it will be an unprecedented expansion of the scheme.
When implemented, it will— paired with a new social security Bill for unorganized workers that is awaiting parliamentary approval—provide social security for the first time in some form for all workers in India.
Previous attempts to push this proposal through have stalled because of opposition from employers, but it appears that there is broad political support for the expansion with both labour unions as well as the labour ministry pushing for an expansion of EPF, sharply increasing its chances in the run-up to national elections within a year.
Extending welfare: Workers in a toymaking shop. The EPF scheme is currently restricted to establishments with 20 or more employees. (Photo: Ramesh Pathania/Mint)
EPF, a scheme under which employees contribute 12% of their basic salary and the employer contributes an equal amount to a government-administered fund that is paid out either on retirement or disability of an employee, is restricted to establishments with 20 employees and more.
The current proposal for extending the EPF scheme was discussed in a meeting of the Employees Provident Fund Organisation, or EPFO, the body which administers the scheme, on 17 April, though employers’ representatives objected to finalizing a resolution saying that they needed more time to respond as no notice was given regarding this issue.
Changing the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, including for establishments employing 10 persons or more, will lead to roughly 4-5% of the workforce in the unorganized sector going into the EPF scheme, according to Ravi S. Srivastava, member of the National Commission for Enterprises in the Unorganised Sector, the government body which drafted the Unorganized Sector Workers’ Social Security Bill.
According to the National Sample Survey Organisation, a government body that conducts socio-economic surveys, there are 44.35 million enterprises employing 79.71 million workers in the unorganized sector in India. In its existing form, as of March 2006, the scheme extends to 441,000 establishments.
The extension was first proposed by Satyanarayan Jatiya of the Bharatiya Janata Party (BJP), then Union labour minister, in 1998. Then it was followed by the 2nd National Commission on Labour in 2004.
“Employers have been blocking it since then (1998) by lobbying with the labour ministry,” says W.R. Varadarajan, secretary, Centre of Indian Trade Unions (Citu) and member of the EPFO board. “The proposal is likely to be implemented this time because the labour ministry is under pressure. They want to pass the Unorganized Sector Workers' Social Security Bill, 2007, in the Budget session.”
Varadarajan says the proposed Bill will, indeed, cover establishments with less than 10 workers as well. “The EPF covers establishments with more than 20 workers, which leaves establishments with 10-20 workers uncovered by any social security legislation,” he reiterated. “To avoid this, they are trying to push the new EPF rules.”
Labour secretary Sudha Pillai confirmed this development. “We are under good pressure and this will go through this time,” she insisted. “Employers associations have expressed reservations but, they, too, know that sooner or later they will have to do it. We will do it as a matter of policy to extend welfare to more workers. It should be decided in the next meeting of the CBT (Central Board of Trustees of EPF) meeting.”
“Employers have asked for more time, the proposal is now with CII members and we are waiting for their suggestions,” added Mohit Gandhi, director of labour affairs at the Confederation of Indian Industry (CII). “We will give our suggestions at the next meeting but the final decision is made by the labour minister.” Gandhi declined to elaborate on the proposals.
Another meeting will be called in May, at the end of the Budget session of Parliament, to try and finalize the proposal. People familiar with the issue, however, say the proposal for blanket applicability of the EPF scheme across industries is likely to fall through since it is not high on the government’s agenda.
A similar recommendation to expand the EPF scheme was made in February this year by the parliamentary standing committee on labour in its review report on the Payment of Gratuity (Amendment) Bill, 2007, where it had also suggested that even organizations employing less than 10 persons should be brought under the ambit of the gratuity law, even as the existing law only provided for payment of gratuity if the establishment employed more than 10 persons.
“Technological changes have enabled organizations to downsize and it is only logical to take these into consideration while drafting labour laws,” says Suravaram Sudhakar Reddy, Communist Party of India, Marxist (CPM) member of Parliament and chairman of the parliamentary standing committee on labour.
The labour ministry, though, had initially objected to such suggestions saying enforcement of existing laws are difficult and if smaller organizations are included, enforcement would become impossible.
“It is not difficult to evolve a mechanism to overcome such difficulties,” insists Reddy. “Given more teeth (for enforcement), it is achievable in three-five years. If they are able to do NREGA, they will be able to do this.”
Others, though, are not convinced. “It is a premature step,” says Gautam Bharadwaj of Invest India Economic Foundation, a consultancy firm with expertise in pension reforms. “Has the EPFO got it right with firms employing 20 or more? The number of which is only one-tenth of the number of firms employing 10 or more. EPFO will be trying to bite more than it can chew with this step.”
K.P. Narayana Kumar contributed to this story.
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First Published: Tue, Apr 22 2008. 11 10 PM IST