What's driving EPFO payroll data?

As beneficiaries under Pradhan Mantri Rojgar Protsahan Yojna have to be EPF subscribers, these numbers indicate that the increase in EPFO payroll estimates is largely due to an increase in the beneficiaries registered under PMRPY.

Illustration: Uttam Ghosh/Rediff.com

There has been much debate over how accurately the monthly payroll statistics released by the employees’ provident fund organization (EPFO) capture job creation in the country.

Data suggests that much of the addition to EPFO numbers over the past year or so is likely to have come from an increase in beneficiaries registered under the Pradhan Mantri Rojgar Protsahan Yojna (PMRPY).

Between September 2017 and September 2018, net EPFO payroll addition adds up to 79 lakh.

In comparison, over the same period, the number of new beneficiaries added under PMRPY stood at 74 lakh.

As beneficiaries under PMRPY have to be EPF subscribers, these numbers indicate that the increase in EPFO payroll estimates is largely due to an increase in the beneficiaries registered under PMRPY.

It’s difficult to know for sure if the beneficiaries registered under PMRPY represent new jobs or new “formal” jobs.

But, as they are likely to be earning less than Rs 15,000 per month, these numbers raise questions over the quality of “formal” jobs being created and whether they are sustainable once the government incentives expire.

Formalisation or new jobs?

Launched in August 2016, the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) was meant to incentivise employers to register with the employees’ provident fund.

The scheme was extended to employers who had added new employees to their establishment.

Each new employee had to have a Universal Account Number (Aadhaar seeded) which had been issued after April 1, 2016 and should not have worked in any EPFO registered establishment in the past.

To avail benefits being offered by the government under the scheme, the new employee had to be earning less than Rs 15,000 per month.

The initial response to the scheme was muted, data has shown.

By August 2017, a year after its launch, only 425,636 beneficiaries were registered under the scheme.

Subsequently, the numbers picked up. Between September 2017 and September 2018, a staggering 7.4 million beneficiaries were registered under PMRPY.

All these beneficiaries should logically show up in the payroll estimates released by the EPFO.

The latest EPFO estimates show that net payroll addition from September 2017 to September 2018 was 79 lakh, only marginally higher than the beneficiaries under PMRPY.

Now, some have suggested that part of the increase in payroll numbers is because of firms registering with the EPFO when the number of workers employed by them reaches 20.

However, the number of establishments registered under PMPRY stood at 127,122 in October 2018, implying that the average number of beneficiaries per firm is around 62.

This estimate, similar to the average number of employees in the Annual Survey of Industries (ASI) 2015-16, implies that bulk of the firms registering under PMRPY are not likely to be the smaller firms who have registered with EPFO after increasing their employee strength to 20 workers.

EPFO data also shows that between October 2017 and September 2018, 56,118 establishments remitted first Electronic Challan-cum-Return (ECR) in the month.

Assuming that most of these establishments are registered under PMRPY, the remaining 54,248 are possibly existing firms who have availed benefits under PMRPY.

But it’s difficult to say whether the number of beneficiaries added by these existing firms under PMRPY or those employed by firms remitting their first ECR reflect a shift from the informal to the formal sector and thus new “formal” jobs or new jobs.

Now, shifts from the informal to the formal sector are likely to occur on two counts - formalisation of the firm as well as the worker.

The former would entail firms operating in the informal space shifting to the formal economy and registering with EPFO to avail benefits under PMPRY.

This would result in new “formal” jobs but not new jobs.

In the case of the latter, firms operating in the formal space, could have formalised the “informal” part of their labour force, resulting in new “formal” jobs.

However, it is equally possible that both existing and new firms may have added new workers. But in the absence of granular data, it is difficult to know for sure.

The Ministry of Labour and Employment did not respond to detailed questions sent by Business Standard.

Data oddities

There are several oddities in the EPFO statistics that have been released so far that make it difficult to analyse in conjunction with PMRPY data.

First, the monthly estimates of net payroll additions have been revised in almost every release, making it hard to analyse.

Moreover, these revisions are not restricted to recent months’ data but for that pertaining to the last year as well.

Second, in a few months, beneficiaries registered under PMRPY exceed the net payroll additions in that month.

While this could be due to lags in reporting, it’s difficult to know for sure.

Third, in its latest release, the EPFO has also revised the number of establishments remitting their first ECR. But no explanation for this has been provided.

Fourth, roughly 40 per cent of these “formal” jobs have been created in the expert services category. But a detailed National Industrial Classification- (NIC-) wise breakup of this category has not been provided, making it difficult to know what type of “jobs” are being created.