Photo: Aniruddha Chowdhury/Mint
Photo: Aniruddha Chowdhury/Mint

Centre reduces ESI contribution to 4% for industrial workers

  • The move will benefit 36 million insured persons and 1.3 million organizations
  • After the revision, employees’ contribution has been slashed from 1.75% to 0.75% of their salary

NEW DELHI : The Prime Minister Narendra Modi-led government on Thursday reduced the salary contribution of industrial workers who are eligible for healthcare benefits under the Employees’ State Insurance Act (ESI) Act from 6.5% to 4%.

The move is aimed at formalising India’s informal workforce and expanding social security coverage.

The ESI Act, 1948, applies to organisations with 10 or more employees, drawing a salary of up to 21,000. The scheme, which is governed by the state-administered Employees’ State Insurance Corporation (ESIC), provides for medical, cash, maternity, disability, and dependent benefits to the insured.

Experts feel the Centre’s move will improve compliance and coverage of the scheme and will benefit 36 million employees working in more than 1.3 million organizations.

The healthcare benefits under the ESI scheme will remain the same, but employees would now have to contribute just 0.75% of their salary (basic plus allowances), instead of the existing 1.75%, while the employers’ contribution will come down from 4.75% to 3.25%, according to the ministry of labour and employment. The reduced rates will be effective from 1 July. “The reduced rate of contribution will bring about a substantial relief to workers and it will facilitate further enrolment of workers under the ESI scheme and bring more and more members of the workforce into the formal sector," the ministry said.

“Similarly, reduction in the share of contribution of employers will reduce the financial liability of the establishments, leading to improved viability of these establishments," it said.

“It is also expected that reduction in rate of ESI contribution shall lead to improved compliance of law," the ministry said.

Experts said the reduction in ESI contribution might have been possible because of the lower cost and better efficiency in operating the health insurance scheme.

“The reduced rate of contribution means lower cost for both the employees and the employers. The employee gets a higher take home salary. A lower rate of contribution does not affect the benefits defined in the scheme," said Gopal Kumar, actuary and economist, Radgo & Co.

Last December, the government had opened up the healthcare units running under the ESIC to general public. These centres offer subsidized medicine, as well as out-patient and in-patient facilities at a nominal cost. Around 154 hospitals and 1,500 dispensaries are operated by the ESIC across the country.

The government, in its pursuit to expand social security coverage to more people, had carried out a special programme to register employers and employees between December 2016 and June 2017. It had also decided to extend the coverage of the ESI scheme to all the districts across the country in a phased manner. The wage ceiling for availing benefits under the programme was also increased from 15,000 per month to 21,000 from 1 January 2017.

The efforts resulted in an increase in the number of registered employees and employers and led to a substantial jump in the revenue income of the ESIC. While the number of insured increased from 31 million in 2016-17 to 36 million in 2018-19, the total contribution jumped from 13,662 crore to 22,278 crore.

Several schemes to help the lower middle class were announced since the NDA government returned to office with a landslide majority last month.

In Union cabinet had in its first meeting introduced a pension scheme for traders, shopkeepers, and the self employed, besides expanding the scope of the income support scheme for farmers, which was announced in the interim budget in February.


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