New Delhi: Differences within the Union cabinet have prompted the government to shelve a populist move suggested by the Union labour ministry to bring more employees under its social security net.

Small is big: A hockey stick manufacturing unit in Jalandhar, Punjab. According to an NSSO survey, there are 44.35 million enterprises employing 79.71 million workers in the unorganized sector in India. Ramesh Pathania / Mint

“There was a suggestion to bring industrial units that have 10 workers, instead of 20, under the country’s labour laws. However, some ministers insisted that it will bring back the inspector raj, and the small-scale industries will be harassed," said a cabinet minister who didn’t wish to be named because of the sensitive nature of the issue.

Cabinet approval was necessary for the government to implement the proposal, which could have been done either by publishing an official notification or having the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, amended by Parliament.

The proposal to extend the employees’ provident fund, or EPF, a defined contribution plan, and the Employees’ Pension Scheme, or EPS, a defined benefit scheme, came up before the cabinet in late October.

Under these plans, which now have an estimated 44 million members, both the employee and the employer contribute to a government-administered fund at the rate 12% of the basic wages, paid out either on retirement or disability of an employee. Out of the total 24% of basic wages collected, 15.67% goes to the EPF and the remaining 8.33% to the EPS.

At present, the deficit that the government is incurring on account of EPS is nearly Rs40,000 crore, which may significantly increase if the the scheme is expanded, according to Gautam Bhardwaj, director, Invest India Economic Foundation or IIEF, a consultancy with expertise in pension reforms.

The Employees’ Provident Fund Organization or EPFO, manages the fund, puts the money it collects into government securities that are low-yielding in nature. The deficit is the difference between the government’s investments and projected liabilities.

“This (deficit) is (there) because one cannot visualize an inflation and interest rate regime in a 40-year horizon. Most of the countries now do not guarantees such benefits and have switched to defined contribution schemes (alone)," said Bhardwaj.

The twin schemes are applicable to factories and establishments employing 20 or more people. For establishments employing less than 20 workers, they are voluntary.

“These (smaller) organization should be under labour laws. It looks like this government is not keen to protect the interest of the workers and the common people," said S. Ramachandran Pillai, a politburo member of the Communist Party of India (Marxist), or CPM.

The CPM, along with other Left parties, has been demanding legislation to protect workers in the so-called unorganized sector that is mostly out of the purview of labour laws and uncovered by the social security net.

The Rajya Sabha passed the Unorganised Workers Social Security Bill on 23 October that aims to provide social security to workers in the unorganized sector. However, a key demand for a dedicated welfare fund for such workers was ignored by the government.

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, these schemes extend to 441,000 establishments.

The proposal precedes a string of state polls this year leading up to the general election due by May.

“Such a move could have (been) projected as a major achievement of the government in the coming elections. It would have earned goodwill among the workers and trade unions," a senior Congress party leader said on condition of anonymity.

“It would have been an answer to the Communists’ allegation that we are anti-workers," he added.

Prakash Javadekar, spokesman for the main opposition Bharatiya Janata Party, also attacked the government. “In the 21st century, all workers, both in organized and unorganized sectors, must get insurance, provident fund and health care benefits," he said.

But independent analysts agreed with the cabinet’s decision to shelve the move.

“EPFO first needs to clean up its present administration and review retirement outcomes that it is currently able to deliver," said Bhardwaj. “Only after putting its current architecture in order, it should think of extending the coverage. At present, EPFO does not have the administrative capabilities to handle such a large number of additional beneficiaries."