Govt to not hike basic salary to Rs 21,000 to increase EPFO coverage

The government has shelved a plan to expand the social security net for nearly 6 million organized sector employees in a bid to ease the burden on the exchequer.

business Updated: Apr 16, 2018 16:59 IST
Prashant K. Nanda
Prashant K. Nanda
Livemint, New Delhi
EPF,EPFO,Provident Fund
10 May 2016, Bhikaji Cama Place,New Delhi: employees provident fund organisation head office , EPFO office.

The Union government has shelved a plan to expand the social security net for nearly six million organized sector employees in a bid to ease the burden on the government exchequer.

The labour ministry has decided not to act on a proposal approved by the central board of Employees Provident Fund Organization (EPFO) to increase the salary threshold from up to Rs15,000 to Rs21,000 per month to bring more workers under mandatory EPF coverage and give them PF and pension benefits.

The government decided to shelve the plan because it will lead to additional expense. However, not increasing the salary threshold may not go down well with workers’ unions at a time of rising anti-government protests across the country.

“It has not moved…right now there is no proposal from our-side,” said Santosh Gangwar, Union labour and employment minister. “I cannot comment anything more on this.”

Interestingly, the central board of EPFO, headed by the labour minister and represented by top labour ministry bureaucrats besides employers and employees representatives, had approved last year a proposal to enhance the salary cap from Rs15,000 to Rs21,000.

Right now, organized sector employees earning a monthly salary of up to Rs15,000 are mandatorily covered under EPFO and enjoy both PF and pension benefits. Enhancing that to Rs21,000 per month would have added some six million more workers under the social security net at a time when the Union government is talking about expanding social security net to a larger pool of people and even for unorganized sector employees.

“Yes, the central board had recommended hiking the salary threshold,” said V.P. Joy, the central PF commissioner without elaborating on why the plan has been shelved.

A labour ministry official requesting anonymity said enhancing the salary cap “may cost the government up to Rs3,000 crore per year. And that’s not a great proposition right now.”

The Union government pays 1.16% of the basic wages to each EPFO subscriber earning less than Rs15,000 a month towards employees’ pensions.

An organized sector worker contributes 12% of the basic pay to EPF, and the employer contributes a matching 12%. Of the employer’s contribution 8.33% goes to pension and 3.67% to the PF corpus.

“The finance ministry had asked the labour ministry to weigh the financial implication of such a move and the financial outgo is the reason for it being put in the cold storage,” said the labour ministry official cited above.

The cost consideration is so much that Gangwar said that he is also not pushing for enhancing the minimum pension from the current Rs1,000 to Rs3,000 per month. All central trade unions are pushing to enhance the minimum pension. “We have been demanding more minimum pension for workers and government should accede to it as it will benefit the working community,” said Virjesh Upadhyay, general secretary of the Bharatiya Mazdoor Sangh, an affiliate of the Rashtriya Swayamsevak Sangh that’s also the ideological fountainhead of the ruling Bharatiya Janata Party.

India is walking a tight rope to control expenditure and the latest economic survey released on 29 January had said that although “investment in human capital is a pre-requisite for a healthy and productive population for nation building, being a developing economy, there is not enough fiscal space to increase expenditure on critical social infrastructure like education and health in India.”

However, India’s fiscal deficit will be narrower than the revised budget estimate of 3.5% of gross domestic product (GDP) in 2017-18, Mint reported on 2 April quoting finance ministry officials, amid concerns that the government may overshoot the target.

First Published: Apr 16, 2018 16:59 IST