The contours of India’s ‘formal jobs’ crisis

Syllabus: GS1/ Social Justice; GS2/ Government policies and interventions, GS3/ Indian Economy & Related Issues; Inclusive Growth and related issues

In Context

• A detailed look at the Employees Provident Fund data reveals stagnation in formal employment in the country.

About EPF’s data on employment 

•  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.

Data highlights

• Stagnancy: 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. 
• 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.

• Years of significant increase: 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. 
• Slowdown: 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.

What does this data signify?

• Widening gaps:
  • 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. 
• Considerably fewer new entrants:
  • 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. 
• Majority of casual/informal jobs:
  • 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.

Challenges

• Absence of formal, well-paid, regular employment:
  • As India overtakes China as the most populous country in the world, it faces an increasingly educated and growing working-age population that requires good-quality employment.
  • However, the relative absence of formal, well-paid, regular employment in the country is striking. 
• Expansion of India’s middle class:
  • This trend inhibits the expansion of its middle class — a factor that was central to China’s economic growth — but which has largely been missing in India. 
  • The lack of quality jobs in the Indian economy gets revealed in instances of large numbers of over-qualified youth applying for a few public or private sector job openings, showing a dissonance with claims of strong economic growth.
• Role of pandemic:
  • The stagnation in formal employment in India can be partially attributed to the pandemic. In fact, the number of EPF contributors declined (somewhat predictably) during the COVID pandemic. 
• Neglect for labour data:
  • Unfortunately, over time the Indian government has neglected other sources of formal employment and labour data that could have been used to verify these numbers and trends. 
  • For instance, the employment market information collected by the Directorate General of Employment and Training (DGET) has not been published since 2013.
  • The DGET data were historically the original source of formal sector payroll employment data in India (since the 1950s). The Reserve Bank of India utilised it as the main source for formal sector employment numbers and related calculations in the country. However, this data is no longer available, even to the country’s central bank.
• AI & possible job loss:
  • The other culprits are artificial intelligence and data analytics.
  • According to experts, AI would take over 7,800 human jobs in the next five years as an eye-opener. 
  • AI could replace some back-office functions and human resources. 
• Job opportunity & qualification mismatch:
  • India presents a paradox of skill shortages while being labour surplus.
    • Trucks are idle because of the shortage of drivers. The steel industry needs more metallurgists. 
    • The healthcare sector is short of nurses and technicians. 
    • The construction sector needs civil engineers, hi-tech welders, bricklayers, and so on. 
• Sector-specific mismatch:
  • India’s economic growth has been largely services led, with a small pool of skills at the upper end, given a glaring failure in mass education, while capital intensity has increased in manufacturing overall in spite of our labour abundance. 
• Low participation of women:
  • One reason is essentially about the working conditions — such as law and order, efficient public transportation, violence against women, societal norms etc — being far from conducive for women to seek work.
    • A lot of women in India are exclusively involved within their own homes (caring for their family) of their own volition. 
  • Lastly, it is also a question of adequate job opportunities for women.

Way Ahead

• The EPF scheme is potentially a good alternative source to gauge payroll employment, but it requires significant standardisation and de-duplication. 
• Moreover, it should be recognised that a single data source is insufficient to understand formal employment and jobs in the country. 
• Understanding and addressing issues of job creation or job quality cannot be achieved without a wide range of standardised, stable and publicly available labour statistics.