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Press Release

Prof. Shyam Sundar's Comment on EPF Rates

13th May, 2020

The announcement of the FM to continue to pay EPF contributions of employers and employees covered under the EPF Scheme at the rate of 12% each under the PMGKP and slashing the EPF contributions from 12% to 10% for both employers and employees in non-PMGKP establishments is indeed a welcome move for two reasons, viz. given the genuine substantial economic distress experienced by businesses and hence considerably reduced liquidity and revenue in their hands, both the kinds of reliefs as applicable will provide some modicum of relief.

On the other hand, for the cash or income starved workers during the national lockdown their liquidity needs will be equally substantial and hence will some hundreds or thousands of rupees in their pockets.

The FM could have expanded the coverage under the PMGKP as not more than 16.5% of the total subscribers has benefited under this scheme due to tougher conditions like coverage of establishments employing 100 employees and with at least 90% of them earning less than Rs.15,000 per month.

Considering the magnitude of the total relief package announced by the PM, viz. Rs.22,000 crores, the relief measures for the organised sector and the MSME sector concerning workers must be far more generous and inclusive to cover more firms and more workers than was the case before. This is a good opportunity which has been missed out again.

Secondly, reduction in the EPF rate may inject liquidity into the system but at whose cost? The reduction may look rosy now and is a low-hanging fruit for the government. It will look rosy now because of more cash on hand now. But it eats into the accumulation of funds for the funds even if marginal only. The issue is that the government is disposed to do this as and when required. Hence, in reality the costs of the COVID-19 crisis management in a basic sense is shifted on to the vast majority of workers who are not covered by the EPF subvention scheme thanks to its narrow coverage.

Finally, how much significance these measures will have for mobile and footloose wage earners like contract and casual workers who may not have portable EPF accounts and may not get immediate employment also. One expects some credible and solid income support for them as they are most hurt by the crisis and will continue to be hurt as they would have continued to dissave (i.e. utilise the savings) and hence are rendered insecure both in the present and the future.

Further, these measures will translate into actual reliefs if and only if employees are called back for work and they get their salaries.