SOCIAL SECURITY IN INDIA

COUNTRY PAPER

PRESENTED BYDR MAHENDRA RAJU AMBATI

DIRECTORNATIONAL ACADEMY FOR TRAINING AND

RESEARCH IN SOCIAL SECURITY

DEMOGRAPHIC & ECONOMIC INDICATORS OF INDIADEMOGRAPHIC INDICATORS

• POPULATION : 1.2 BILLION• CHILDREN : 41% of Population• WORK FORCE : 40% of Population• NON WORKING (OLD AGED ETC.) : 19% of Population• COVERED IN THE FORMAL SOCIAL SECURITY SYSTEMS : 14% of Work Force (viz EPFO/ESIC/GPF/CSPS of private, public & Govt sectors)• COVERED IN THE INFORMAL SOCIAL SECURITY SYSTEMS (viz micro insurance etc : 8% of Agri Labour National Old Age Pension Scheme : 2% of Old Aged• UNIVERSAL SOCIAL ASSISTANCE : 85% House Holds (Public Health/Education Etc)• Rural Employment Guarantee Scheme : 25% Work Force ( including PWD Works All over India)• LIFE EXPECTANCY : 69 Years

ECONOMIC INDICATORSINDIA RISING

• RATE OF GDP GROWTH : 9.5 %• RATE OF INFLATION : 3.5 %• STOCK MARKET SENSEX CROSSED : 19,000 POINTS

( source : news paper reports )

SOCIAL SECURITY SYSTEM IN INDIA

The segment of the Formal Private Sector

• Participation in two social insurance programs is mandatory for workers in establishments with more than 20 employees who earn less than Rs 6,500 a month.

• These workers constitute 49 percent of the salaried work force and slightly more than 7 percent of the estimated total work force.

Formal Social Security Sector Two funded pension schemes :

1. the Employment Provident Fund (EPF), a defined-contribution program, and

2. the Employment Pension Scheme (EPS), a defined-benefit program

Both overseen by the Employees Provident Fund Organization (EPFO) INDIA

• Employees Provident Fund Scheme was established in 1952 and participation is mandatory for private and public enterprises in 177 specified sectors that employ more than 20 persons

• As of March 2006 the EPF covered about 43 million workers in 4,44,464 establishments

• As of end-March 2006, total corpus in EPFO was US$ 50 billion • Which makes nevertheless EPFO a worlds largest social security

organization

Employees Pension Scheme. • The EPS was established in 1995.

• As of March 2006 it covered about 20.5 million workers. • The EPS is currently funded by employer of 8.33 percent

of employees' basic wages plus dearness allowance.

The EPS provides pension benefits that are calculated

1. On the basis of a worker's average salary in the 12 months preceding retirement, and

2. A multiplicative factor calculated as years of service divided by seventy. • The maximum replacement rate is 50 percent, • As of end-March 2006, accumulated funds in the EPS were US$ 20

billion.

EMPLOYEES PENSION SCHEMECOVERAGE

Organised Sector

• All public sector undertakings• All Cooperative sector units• All joint sector units• All private sector units viz., Factories Hospitals Hotels Educational institutions so on so forth

Un Organised Sector

Building & construction Agriculture FarmsHorticulture FarmsDairy farmsPlantation workers viz( Tea – coffee – rubber – cashew etc )so on so forth

EMPLOYEES PENSION SCHEME

BENEFITS• Pension for life to the member on superannuation/retirement

and invalidation. • Pension to Widow/Widower for life or till re-marriage. • Two children/orphan, two at a time additionally up to 25

years of age simultaneously with widow/widower pension for five children.

• Children/orphan with total and permanent disability pension or orphan pension irrespective of age and number of children in the family.

• Facility for payment of pension to nominee in the event of member who is unmarried

• Facility for payment of pension to dependent father/mother in the event the member dies leaving behind no eligible family members and no nomination

• Commutation of pension up to 1/3rd of pension

EMPLOYEES STATE INSURANCECOVERAGE• All factory units• All establishments• No. of Insured employee family units about one million  • Total No. of Beneficiaries 36 million

Benefits • Medical Benefits• Sickness Benefits• Maternity Benefits• Disablement Benefits• Temporary disablement benefits• Permanent disablement benefits• Dependants’ Benefits• Funeral Expenses • Medical Benefit to Retired Insured Persons

Cash Benefits are disbursed by its Local pay offices

• Rehabilitation allowance including

• Vocational Rehabilitation

• Unemployment Allowance      

Civil service pension system • The CSPS covers federal and state civil servants, a workforce

of over 12 million

• Workers make no contributions, and benefits are financed directly from the respective federal or state government budgets.

• The CSPS pays a retirement benefit at age 60 that is based on years of service and average salary in the last year of service.

• The accrual rate is slightly over 1.5 percent replacement per year of service, so that a worker with 33 years of service will get a 50 percent replacement of final salary, as in the EPS.

• Within the central government, pension schemes are in place separately for railways, telecommunications, defence etc.

Special provident fundswith family pension benefits

There are also some mandatory provident funds linked to specific occupations or states, such as

The Coal Miners Provident Fund The Assam Tea Plantation Provident Fund The Jammu & Kashmir Provident Fund The Seamen s’ provident Fund • Although managed by different trusts and fund managers, they all

generally follow the same investment and return rules as those funds regulated by EPFO.

• Total membership in these schemes is roughly 2 million.

• Total corpus is around US $ 10 Billion

Voluntary Pension programs for the formal sector

There are also a number of voluntary group pension planthat exist primarily because of rules barring high earningemployees from participating in the EPF system.

• These pension schemes are either privately run by managers appointed by employers, or annuities are run by the Life Insurance Corporation (LIC).

• Although they are neither mandatory nor sponsored by the government, they are mentioned here because they receive tax preferences and because they are subject to restrictive investment and annuity regulations.

• As of March 1998, the total accumulated funds for these group pension plans was about US$15 billion

The Informal Social Security Sector Public Provident Fund • There are no mandatory retirement-saving programs for the

self-employed or for workers in the informal and unorganized sectors of the economy these workers can join the Public Provident Fund (PPF).

• Members of the PPF can contribute between US$25 and US$

500 per fiscal year, and PPF accounts mature in 15 years. • As of March 1998, there were 2.76 million accounts in the

PPF, representing less than one percent of the working population with total outstanding balances of approximately US$15 billion.

National Old Age Pension Scheme• NOAPS provides a benefit for the poorest workers of 65 years

of age in the informal sector.

MICRO INSURANCE (SOCIAL SECURITY) FOR INFORMAL SECTOR

( ADMINISTERED BY CENTRAL & STATE GOVTS ) DELIVERED BY DISTRICT MAGISTRATES IN THE STATES

COVERAGE

• Agricultural Labour• Fisher men• Domestic helps• Rickshaw pullers• Toddy tappers So on so forth

BENEFITS

• Disability pension for life• Widow pension for life

UNIVERSAL SOCIAL ASSISTANCE / SOCIAL PROTECTION PROGRAMS( ADMINISTERED BY CENTRAL & SEVERAL STATE GOVTS ) BENEFITS

• Free Medical & Health ( Govt Hospitals / Primary health centers all over the country

• Free Education up to high school ( Govt schools all over the country)

• Free Education for girls up to college ( Govt colleges all over the country )

• Free Power to small farmers for agricultural purposes

• Free Power to single room tenements for low income groups

• Mid Day Meal in schools to children of low income families

UNIVERSAL SOCIAL ASSISTANCE / SOCIAL PROTECTION PROGRAMS( ADMINISTERED BY CENTRAL & SEVERAL STATE GOVTS ) BENEFITS

• Free transport in local trains / busses for old aged & physically handicapped of any age

• Concessional ( half price ) fares in trains / busses any where in the country for old aged & physically handicapped of any age

• Marriage allowances in kind for low income group

• Reservation for women up to 33 % in all jobs and for socially oppressed class up to 15 % in all jobs all over the country

RURAL EMPLOYMENT GURANTEE PROGRAM

• National Rural Employment Guarantee Program promises wage employment to every rural household (adult volunteers get unskilled manual work @ Rs 60/ per day per person)

• Through this Program the Government aims at

removing poverty by assuring at least 100 days' employment

• ‘Public Works Department’ is another Rural Employment Guarantee Program in place which guarantees employment to rural unemployed population through deploying Labour in ‘Roads & Building’ activities all over India.

RECOMMENDATIONS by the presenter :

some of them presented before EPFO/GOVT

ON COVERAGE

• Let there be ( central registration authority ) for issue of social security number

• Let all employees get SSN to start with whether covered by EPFO or not

• Then on ongoing basis let every citizen get SSN from that central registration authority

• Once every employee gets SSN, it becomes easy for EPFO to track uncovered employees either from organised or unorganised sectors and then to go for universal membership near total

ON INVESTMENT PORTFOLIO

• Open up limited investments into equity very cautiously in proven stock options on test basis

• Venture into real estate/leasing investments/trading

RECOMMENDATIONS by the presenter :

some of them presented before EPFO/GOVT

…contd

ON DIVERSIFICATION OF BUSINESS OPPORTUNITIES FOR MAKING SOCIAL SECURITY SYSTEM MORE ROBUST

Venture into fallowing activities

• Life & General Insurance• Stocks Trading• Housing & Development Finance• Banking• Venture Financing• Mutual funds• Real estate • Leasing finance & development

RECOMMENDATIONS by the presenter : some of them presented before EPFO/GOVT…contd

(ON CONSOLIDATION /UNIFICATION OF SOCIAL SECURITY SYSTEMS)

• Let there be new central ministry called MINISTRY OF SOCIAL SECURITY AND SOCIAL PROTECTION

• Let all the special PF s ( Coal mines/seamen s etc ) be merged into EPFO for uniform benefit delivery

• Let ESIC & EPFO be merged for uniform and efficient benefit delivery• Let all the micro insurance/social assistance programs & NOAP also be merged • Let all the above be under one umbrella for effective benefit delivery

Let all the social protection delivery mechanisms in STATE GOVTS viz.

• Maternity benefit act provision• Workers compensation act provisions• Contract workers abolition act provisions• Mining workers welfare act provisions• Beedi & cigar workers welfare act provisions• Domestic workers welfare act provisions of certain state Govts

so on so forth also be brought under one umbrella as suggested under one CENTRAL MINISTRY OF SOCIAL SECURITY for uniform efficient benefit delivery

If my above recommendations are accepted by GOVT….. Social Security System in INDIA can be

• More income generating

• Less vulnerable

• More sustainable

• Better benefits

• Commensurate with rate of inflation and finally

• Raise standards of living of the beneficiaries on ongoing basis

THANK YOU