Data | The contours of India’s ‘formal jobs’ crisis Premium

The Indian government has been using the Employees Provident Fund (EPF) scheme’s data as a measure of payroll employment and formal job creation since 2017. The monthly data released from this initiative has generally shown an increase in the number of contributors, which is portrayed as evidence of employment creation in the country. However, this optimistic picture contradicts the ground reality of unemployment and a dearth of jobs reported from various parts of the country. While the monthly data indicates a rise in contributors, the annual reports from the EPF Organisation (EPFO) reveal a different story. The number of regular contributors, those making consistent PF contributions, has remained stagnant or even declined in recent years, as opposed to the overall increase in EPF enrolments. Between 2012 and 2022, the number of regular contributors did increase, but the growth slowed down significantly in the past five years, with only 1.2 million new regular contributors added despite a significant rise of 67 million in overall EPF enrolments. This divergence between EPF enrolments and regular contributors implies that a majority of enrolments are linked to temporary, subcontracted, or casual jobs where PF contributions are irregular or cease shortly after enrolment. Therefore, the jobs being created are not formal, well-paid, and stable, hindering the growth of a middle class, which is crucial for sustained economic development. The COVID-19 pandemic exacerbated the situation, leading to a decline in EPF contributors. However, the EPFO disputed its own numbers and stopped publishing monthly data on regular contributors after the decline was noticed by the media. Moreover, the Indian government has neglected other sources of formal employment and labour data that could have verified these trends, such as the employment market information collected by the Directorate General of Employment and Training (DGET), which has not been published since 2013. This lack of reliable and up-to-date data has hindered efforts to understand and address issues related to job creation and job quality in India. In conclusion, although the Indian economy may appear to be creating jobs, the majority of these are not formal, well-paid positions. The absence of quality jobs inhibits the expansion of a strong middle class, which has been a significant factor in China’s economic growth. To tackle this issue, the government needs to focus on generating reliable and comprehensive labour statistics from various sources to gain a more accurate understanding of the employment situation and to implement effective policies that promote formal and stable job opportunities

Since 2017, the Indian government has been using the Employees Provident Fund (EPF) scheme’s data as a measure of payroll employment and formal job creation in the country. The monthly data released as part of this initiative has generally shown net increases in the number of contributors and this has been portrayed as evidence of employment creation in the country. However, this is in stark variance with ground reports of unemployment and a dearth of jobs from various parts of the country. So, how does one square these divergent narratives and understand what’s happening to formal jobs in the country? If we move past the basic scheme enrolment numbers, the EPF data, in fact, provide important insights into what’s happening to formal employment in the country. It also reveals why official claims of job creation based on EPF enrolment numbers can be misleading.

Unlike the EPF monthly enrolment data, which generally depicts increases in contributors, the EPF Organisation’s (EPFO) annual reports reveal that the number of regular contributors to the scheme has remained relatively stagnant or even declined in recent years, as shown in Chart 1. Regular contributors to the EPF scheme are those enrolled employees whose PF contributions are made on a regular basis during the year. This is in contrast to those employees who are merely enrolled into the scheme at some point, but whose contributions are irregular or stop shortly after.

Chart appears incomplete? Click to remove AMP mode

Between 2012 and 2022, the number of regular contributors to the EPF increased from 30.9 million to 46.3 million. A significant increase occurred in 2016-17, when the Indian government encouraged firms with private PFs to join the government’s EPF and introduced other incentive schemes that paid the employer’s share of PF contributions. However, in the past five years, when the effects of such incentives and firm enrolments somewhat stabilised, growth in regular contributors slowed down significantly. Between 2017 and 2022, the number of regular contributors increased only from 45.11 million to 46.33 million. Strikingly, this occurred during a time when overall enrolments in the EPF increased from 210.8 million to 277.4 million as shown in Chart 2.

In other words, though the total number of EPF enrolments increased by around 67 million, the corresponding increase in regular contributors within that was only 1.2 million. The number of people enrolled in the EPF can generally be expected to be higher than regular contributors due to issues of duplication and old membership data, but it is concerning that in recent years, the gap between them has been noticeably widening. If the EPF data are to be considered as an indication of formal employment, then there appears to have been a net creation of only 1.2 million formal jobs in the past five years. For perspective, at current participation rates, there were an estimated 20-25 million new entrants into the Indian labour market.

The divergence between EPF enrolments and regular contributors indicates that the majority of enrolments into the EPF are linked to jobs that are of a temporary, subcontracted or casual variety — where PF contributions are irregular or cease shortly. Thus, though the Indian economy appears to be creating jobs – these are not formal, regular well-paid jobs that can provide good quality, long-term employment.

The EPF numbers are broadly in line with longer employment trends of the country, thus indicating that formal employment in India has become increasingly standardised in terms of EPF enrolment, rather than the creation of new formal jobs per se. With the government paying the employer’s share of PF contribution, smaller firms and employers have been enrolling their employees into the EPF scheme in order to avail of its benefits and reduce their wage expenditures. However, many of these incentives are applicable only to employees earning Rs 15,000 or less per month. Preliminary accounts suggest stagnation around this wage level, possibly or at least in part due to such schemes.