Social security administration in India- study of provident funds and pension scheme

251 Pages·2013·1.4 MB·English

Munich Personal RePEc Archive
Social security administration in India-
study of provident funds and pension
scheme
Rao, Madhava P
30 December 2005
Online at https://mpra.ub.uni-muenchen.de/1919/
MPRA Paper No. 1919, posted 26 Feb 2007 UTC
SOCIAL SECURITY ADMINISTRATION IN INDIA
A STUDY OF PROVIDENT FUNDS AND PENSION SCHEME

P. MADHAVA RAO
1
CONTENTS

Chapter Title Page
Number
PREPHASE i
LIST OF TABLES, BOXES, CHARTS, GRAPHS AND APPENDICES ii-v
I INTRODUCTION AND DEFINITION OF SOCIAL SECURITY 1

II REVIEW OF LITERATURE 33

III AN OVERVIEW OF EMPLOYEES’ PROVIDENT FUNDS AND 52
EMPLOYEES’ PENSION SCHEMES

IV WORKING OF EMPLOYEES(cid:146) PROVIDENT FUNDS & PENSION 85
SCHEMES -ADMINISTRATIVE ARRANGEMENTS

V ASSESSMENT OF PROVIDENT FUND & PENSION SCHEME AND 110
THEIR OPERATIONAL DIMENSIONS

VI IMPACT OF LIBERALISATION ON 181
SOCIAL SECURITY ARRANGEMENTS

VII AN OVER VIEW OF THE EXEMPTED ESTABLISHMENTS 195

VIII CONCLUSIONS AND RECOMMENDATIONS 206

BIBLIOGRAPHY 230

APPENDICES 239
i
PREPHASE

Social Security is becoming a distinct part of the social policy of India. Successive
governments in India have promised many a benefit to all those in need of social security.
Many programs of Social Security have come and gone. The Employees Provident Fund
Organisation which is the largest Social Security organization in terms of its coverage for
Old Age income and survivor benefit programmers for the industrial workers has covered
over 30 Million people working in the business houses in India. Nevertheless, coverage of
total population, at least total working population, has been the demand of the social security
thinkers and economists in the liberalized economy of India. Responding to the need of
covering entire workforce in a viable and feasible and looking for options of such programs,
it is felt that the administrative arrangements currently available for old age income and
survivor benefits programs should be reviewed and remedial measures suggested before
suggesting any additional programs. Thus I have taken up to study the Social Security
Administration in India with special reference to Provident Funds and Pensions, examine the
feasibility of covering entire working population including workers in the informal sector,
and suggest restructuring the administration. I have tried to review and analyze current
arrangements, suggest improvements and also suggest a comprehensive social security
program for the informal sector.
In the happy moments of submitting my study, I can not afford to forget the
personalities who have been supportive and encouraging in my endeavours to accomplish this
task. I would like to place on record the guidance and support extended to me all these years
by all of my well wishers. However, it would be ungraceful if I do not mention the names of
those who have been very close to my heart and never felt that they are different from me.
My heartfelt gratitude goes to my supervisors Dr. Arun Kumar Patnaik and Dr.
Gopinatha Reddy at Center for Economic and Social Studies (CESS) Hyderabad in the first
place, without whose active guidance my work could have not been completed. At times they
both spent their time on my work in such a seriousness as if they were doing their own
research work and helped in finding the minutest errors that crept in while constructing
sentences or formulating concepts. I am indebted to them fully.
I should not forget Mr. Venkataih Research Coordinator (CESS) whom I bothered
without any time sense and even on holidays and who never felt that I was bothering him. I
can not afford to miss mentioning him now.
My submission would be incomplete if do not mentions the persons who have
extended their secretarial support to me to present this dissertation in this form. Particularly
Ms. Parwati Nair my personal assistant at EPFO Bombay, who has tremendous speed and
accuracy in taking lengthy dictation, print it in the final form. My private secretary Ms.
Surinder Kaur, my data entry operators Mr. Yohesh, and Ms. Mamata helped to type final
draft and in construction of data tables. I woe a lot to our librarian Ms Surinder Kaur at
NATRSS who helped me with all the literature I wanted. They always felt that they were
working for genuine cause and not as a duty.
Last but not the least, my wife Jyothi has been the first reader of the drafts and
suggest me the formats of the pages and data correlation. I woe her a lot. My lovely daughter
Gargi, had been soothing me with her melodious songs whenever I felt over worked. My love
is due to her.
I welcome suggestions to improve my work and will be happy if the researchers,
policy makers and economists feel that my work is useful for them in any way.
ii
LIST OF TABLES, BOXES, CHARTS, GRAPHS, AND APPENDICES

S.No Table Contents Page
No. No.
1. I.1 Shrinking employment as per planning commission 17
2. I.2 Total population, total workers, main workers, marginal workers and 18
non-workers - India, 1991 and 2001 along with net accretion
(provisional
3. I.3 Total workers (main +marginal) and their categories - India, 1991 and 20
2001 along with net accretion (provisional
4. I.4 Status Of Aged Persons 23
5. I.5 United Nations Projections of Population (Medium Variant) for the Ten 24
Most Populous Countries, Percentage of Population Aged 0-14 and 60
and above and the Ageing Index, 1995 and 2020.
6. I.6 India: Projected Figures of the Population 25
Aged 60 and Above, 1996-2026
7. III.1 An example for calculation of pensionable salary 64
8. III.2 The Past Service benefit payable on completion of 58 years of age of 67
16.11.95

9. III.3 Minimum past service benefits 67
10. III.4 Pension for a worker of age below 48 as on 16-11-1995 68
11. III.5 Pension for a worker of age below 48 as on 16-11-1995 68
12. III.6 Pension Computation For (cid:145)Y(cid:146) Category [Para 12(4) ] 69

13. III.7 Worksheet-2 on pension 69
14. III.8 Pension Computation For (cid:145)Z(cid:146) Category [Para 12(5) ] 69

15. III.9 Worksheet-3 70
16. III.10 Pension Computation For (cid:145)X(cid:146) Category [Para 12(3) ] 71
17. III.11 Worksheet -4 71
18. III.12 Pension Computation For (cid:145)Y(cid:146) Category [Para 12(4) ] 72
19. III.13 Worksheet-5 73
20. III.14 Calculation Of Disablement Member Pension-Example -2 74

21. III.15 Formula Pension calculation 74

22. III.16 Calculation Of Widow Pension In Case Of Death While In Service 77

23. III.17 Worksheet-17 78
24. III.18 Pension On Death After The Date Of Exit 78

25. III.19 Calculation Of Widow Pension In Case Of Death After Exit From 79
Employment
26. III.20 Worksheet-8 79
27. III.21 Calculation Of Children Pension 80
28. III.22 Calculation Of Orphan Pension 81
29. IV.1 Areas Of Central Government Control Over Central Board Of Trustees 89
30. IV.2 Details Of Manpower 97
31. IV.3 The Position Of Sanctioned Staff/Officers Strength Vis-(cid:192)-Vis Staff 97
Officers In Position During Last 10 Years

32. IV.4 4administration Income & Expenditure Over The Years 100
iii
33. IV.5 % Growth Over Previous Year 100

34. IV.6 Expenditure Ratios 101

35. IV.7 Analysis Of Administrative Expenditure 101

36. IV.8 Income And Expenditure Trends 107

37. IV.9 Administrative Expenditure And Service Cost 107

38. V.1 Categories Of Establishments 113

39. V.2 Joint Stock Companies At Work 114

40. V.3 Estimates Of Production & Employment 115

41. V.4 Employment In The Organised Sector 116

42. V.5 Value Added From Organized And Unorganized Sector 117

43. V.6 Status Of The Live Register 119

44. V.7 Employment Assistance Rendered By Employment Exchanges To 120
The Educated Job Seekers

45. V.8 Wage Limit For Coverage 122

46. V.9 Conditions Of Eligibility 123

47. V.10 Coverage Of Members Over The Years under Employees(cid:146) Provident 126
Funds & Misc. Provisions

48. V.11 Coverage Of Work Force Under Various Schemes 127

49. V.12 Coverage Of Members- Public And Private Sector Wise 128

50. V.12(A) Collection Of Contributions Over The Years 134

51. V.12(B) Contribution Default 135
52. V.13 Issue Of Account Slips 139

53. V.14 Details Of Interviews Conducted 140
54. V.15 Issue Of Annual Statement Of Accounts To Subscribers during 1999- 142
2000
55. V.16 EDP Centers And Manpower 143
56. V.17 Comparison Of Computerisation And Non Computerisation Periods 144

57. V.18 Details Of Slips Issued 145
58. V.19 EPFO Findings On Compliance 145
59. V.20 Work of Inspectors (Enforcement Officers) Over last 10 years 148

60. V.21 Categories Of Compliance 150

61. V.22 Exercise Conducted By Employees’ Provident Fund Organisation 150

62. V.23 Exempted Establishments 152

63. V.24 Details Of Un- Exempted Establishments In Default 153

64. V.25 Default During 1999-2000 153
iv
65. V.26 Details Of 7-A Cases 154

66. V.27 Details Of Default Management 155

67. V.28 Details Of Default Management-2 157

68. V.29 Default By Jute Mills 158

69. V.30 Status Of Arrears 159

70. V.31 Employees Provident Fund Scheme 1952settlement Of P.F. Claims 162
1989-1999
71. V.32 Pension Cases Settled 163

72. V.33 Monthly Pension Cases Settled 164

73. V.34 Transfer Cases 165

74. V.35 Productivity Of Staff Members. 169

75. V.36 Details Of Various Settlements 171

76. V.37 Complaints Documented By Epfo 172

77. V.38 Investment Patterns In Employees’ Provident Fund Organisation 175

78. V.39 Investments Over The Years Employees Provident Fund Scheme 176

79. V.40 Investments Employees Pension Scheme 1995 177

80. VI.1 India projected figures of the population aged 60 and above 1996-2026 183
a. Official projections for the 9th plan
b. Alternative long-term projections.
81. VI.2 Status Of The Live Register 185
82. VI.3 Employment In The Organised Sector 186
83. VI.4 Coverage Of Members Over The Years Under Employees(cid:146) Provident 187
Funds & Misc. Provisions Act, 1952
84. VI.5 Employment Status Of Workforce, 1972-3 And 1993-4[In Percentage] 188
85. VI.6 Unorganized In The In The Working Population 190
86. VII.1 Default In The Exempted Sector 197

87. VII.2 No Growth In The Membership Over The Years 198

88. VII.3 Partial Withdrawals 199

89. VII.4 Rate Of Interest Paid By The Exempted Trusts 200

90. VII.5 Contributions Investments Comparative Table 201

91. VII.6 Loss In Administration Charges 201

92. VII.7 Calculation Of Staff Required To Run Exempted Trusts By EPFO 202

93. VII.8 Details Of Inspections 203

LIST OF BOXES
v

S.No Box No. Description Page
1 I.1 INDIA FACTS 21
I.2 EVOLUTION OF SOCIAL SECURITY 28
2
3 II.1 DEFINITIONS OF ORGANISED AND UNORGANISED 34
4 II.2 KEY RECOMMENDATIONS OF SECOND NLC 51
5 V.1 HOW COVERAGE IS AVOIDED 132
6 V.2 PENSION BUILDS CONFIDENCE 160
7 V.3 CASE OF DELAY IN SETTLEMENT 166

LIST OF CHARTS

S.No Ch. No. Description Page
1 IV.1 ORGANIZATIONAL CHART 93
2 IV.2 ADMINASTRATION PENTAGON 95
3 IV.3 REGIONAL ADMINISTRATIVE DIAGRAM 96
4 V.1 DETAILS OF INTERVIEWS CONDUCTED 111
5 V.2 ADMINISTRATIVE CHART 149
6 V.3 INVESTMENT CHART 173
7 V.4 INVESTMENT FLOW CHART 176
8 VIII.1 RAO(cid:146)S TRIANGLE 225

LIST OF GRAPHS

S.No Ch. No. Description Page
1 I.1 Growth of Workers and Non Workers over 1991 levels 19
2 IV.1 Analysis Of Administrative Expenditure 102
3 IV.2 Administration Income and Expenditure 103
4 IV.3 Administration Expenditure Ratio 104
5 IV.4 % Growth Over Previous Year 105

6 VI.1 EPF Interest rates since 1991 193

APPENDICES

S.No App.No Description Page
1 1 Fundamental rights in the Indian Constitution relevant for social 239
security
2 Directive principles in the Indian Constitution relevant for social 240
2 security

3 3 ILO Conventions Ratified by India relevant for social security 241
1

CHAPTER I

INTRODUCTION AND DEFINITION OF SOCIAL SECURITY

Social Security is becoming a distinct part of Social Policy of our country and the time has come to
give serious thought to ever-increasing Social Security needs of the population. There are diversified
views on extension of Social Security coverage. Some say it should be limited to only working
population and to their families and while others say that the entire population should be covered
under social security programmes.
In this background it is proposed to examine and understand the concept and objectives of
Social Security, Social Security schemes in general and the administration of provident fund, pension
schemes available in the country in particular, their administrative arrangements like coverage,
implementation of the legislation, benefit delivery etc. It is also proposed to attempt to suggest the
methods to strengthen the administrative arrangements available for benefit dispensation.
Social Security schemes like Public Distribution system, Integrated Rural
Development Programme; Jawahar Rozgar Yojana; Prime Minister Rozgar Yojana etc. are
not touched purposefully for they are independent and distinct topics and need separate and
depth study. Our study mainly deals with Provident Funds and Pension Schemes of Social
Security from the administration/organisational point of view.

MEANING AND DEFINITION OF SOCIAL SECURITY
A human being has to live until his death. The journey from the date of birth to date of death
can be understood as sustenance; alternatively, the living. To accomplish this (cid:145)task(cid:146) of living
one has to have enough economic provision or support, either earned on his own or provided
by some body else. When some body provides this, it is called dependency. Definitely, there
are two phases in one(cid:146)s life where, where one is dependent on other person or on the society .
The first phase- from the date of birth until the date when he/she becomes fit to start earning
his own living. This phase, we may call (cid:145) first phase of dependency(cid:146) The second phase of
dependency is the phase when a person ceases to work/ earn or retires from active work life.
We may call it old age. There are intermediate phases of dependencies like: disability,
sickness, employment injury; unemployment, loss of employment or other contingencies that
might interrupt the working life of an individual. Children, non-earning women, unemployed
widows are predominantly dependent on earning members of the family. Traditionally
family provided this support. We also see such support provisioning by social groups,
membership institutes, markets and ultimately by the state. Thus, failure in support
2
provisioning or inadequate support provisioning by one institute makes other institute
responsible for the welfare of the individual.1This provisions made by the society for trouble
free living of these persons may be understood as social security. Historically, we see the
families, groups; guild, churches, and the states make this provisioning. As the states have
grown, the priorities of the states have grown. As the priorities of the states have grown re
thinking on such provisioning has started. One (cid:150) questioning very basic concept of state
providing support in terms of affordability, and the second efficiency in providing in
accordance with expectations of the beneficiaries. ( A brief outline of evolution is bulleted in
Box- I.2). Along with the affordability and efficiency another question arises is the question
of extension of provisioning in terms of coverage. We need to understand the levels of
efficiency of the available systems, extent of coverage, coverage gap, and find suitable
policy options and approaches to strengthen the delivery systems.

If we look at the definitions side of the Social Security, there is no commonly accepted
definition of the term "SOCIAL SECURITY". According to the I.L.O. Social Security
means (cid:147) the result achieved by a comprehensive and successful series of measures for
protecting the public (or a large sector of it) from the economic distress that, in the absence of
such measures , would be caused by the stoppage of earnings in sickness, unemployment or
old age and after death; for making available to that same public, medical care as needed; and
for subsiding families bringing up young children(cid:148) (ILO, Geneva, 1958) again ILO redefines
Social Security as (cid:147) protection given by society to its members through a series of public
measures from economic and social distress that otherwise would be caused by stoppage of or
substantial reduction of earnings resulting from sickness, maternity, employment, injury,
unemployment, invalidity, old age and death; the provision of medical care and the provision
of subsidies for families with children (ILO Geneva 1984, p.3).
ILO further defines Social Security as - "the security furnished through appropriate
organisation against certain risks to which its members are exposed. These risks are
essentially contingencies against which the individual of small means cannot effectively
provide for by his own ability or foresight alone or even in private combination with fellows"
(ILO, 1984, P.83).
This outlook is true only in the case of developed countries characterized by full
employment or near full employment with a large percentage of population working in
industries. Naturally, the needs of such people are different from those of the people in

1 Social Security from (cid:147)Poor Laws to Pension Reforms(cid:148), P. Mahdava Rao, 2002 (draft)