Home >News >India >Wage subsidy via EPFO may drive creation of a million jobs
Experts believe while it is a welcome initiative, the move may incentivise low-wage work and might not affect market demand.
Experts believe while it is a welcome initiative, the move may incentivise low-wage work and might not affect market demand.

Wage subsidy via EPFO may drive creation of a million jobs

  • The job creation target is likely to benefit the lower rung of the salary pyramid, but will also push formalization

The wage subsidy through the Employees’ Provident Fund Organisation (EPFO) is likely to cost the Centre 6,000 crore, and may help create more than one million jobs over the next two years.

The job creation target is aimed at the lower rung of the salary pyramid, but will push formalization, said two government officials, seeking anonymity. However, monitoring the number of new jobs against the claims by some firms will be tough, they said.

“Creating a million jobs is not difficult to achieve with the initiative. At least 500,000 establishments with 20 or more workers are registered with EPFO and if they add just two employees each in their payroll, then the one million number can be achieved easily," said one of the officials mentioned above.

“Remember, the economy is expected to bounce back gradually from the first quarter’s dismal performance. Demand in construction, real estate and cement and auto sectors are reviving. The Atmanirbhar Bharat Rozgar Yojana (ABRY) makes provision that firms taking back employees who lost their jobs during the lockdown will enjoy EPF subsidy of up to 24%. This will be a big driver. Old employees are already being taken back and as we recover, things will change for good," the other official said.

The Centre will provide subsidy for two years for workers who lost jobs between 1 March and 30 September, but are now joining back, as well as for new workers employed between 1 October and 30 June 2021 under ABRY, Union finance minister Nirmala Sitharaman said last week. For both categories, the salary was capped at 15,000 per month.

The partial EPF subsidy scheme, PM Rojgar Protsahan Yojana, announced in 2016 with a shelf life of three years led to a cost of more than 8,300 crore, said the first official. The ABRY is more comprehensive but for two years. “A formal calculation is not yet done but roughly the expenditure won’t be less than 5,500-6,000 crore," the first official said.

Last time, 153,000 companies had availed the benefit, while this time the number will be more as “we expect a lot of welcoming back of workers, especially those who had lost jobs because of business loss during the lockdown", said the second official.

On 12 November, FM had said the addition of new employees will be above the September employee count and, if a company had up to 50 workers by end of September, it needs to create at least two jobs to be eligible for the EPF subsidy. Companies with more than 50 employees are required to add five new employees to get the benefits. Establishments registered with EPFO that have up to 1,000 workers will get 24% EPF subsidy, 12% of the employers’ share and 12% of the employees’ share. If the company has more than 1,000 employees, the government will reimburse the 12% share of the new employees added.

“The scheme has reduced the human cost for companies. Some will argue that the salary cap of just 15,000 is not enough, but the potential answer is that the government aims to incentivise employment creation for the lower strata, who were worst hit by covid-19. It will also pull out a good number of workers who had lost formal jobs in recent months," said the second official.

Experts, however, said while this is a welcome step, it is incentivising low-wage, low-productive work. "The outcome of these jobs will have limited multiplier effects and may not influence the demand in the market," said K.R. Shyam Sundar, a labour economist.

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