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Is EPFO data right metric to show job creation? No, say experts citing its data limitations

Wage ceiling, mobility of lower-end workers, smaller establishments willfully avoiding registrations among factors that make EPF data flawed indicator, they assert

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New Delhi: While the government often cites monthly data from the Employees’ Provident Fund Organisation (EPFO) — the latest edition of which was released on Friday —  to show that formal sector employment is growing in India, economists say that the data is flawed, prone to inflation and captures only a small portion of the formal sector.

The data released by the Ministry of Statistics and Programme Implementation (MoSPI) shows that net additions to the EPF database, at 87.13 lakh in the first six months of financial year 2022-23, looks set to surpass the 122.3 lakh net additions in 2021-22.

The figure for the April-September 2022 period is higher than the full-year figures for 2018-19 (61.12 lakh), 2019-20 (78.6 lakh), and 2020-21 (77.1 lakh).

In the past, several ministers have cited the EPF data to show that formal sector employment is growing. As recently as Tuesday, Ashwini Vaishnaw, Union Minister for Railways, Communications, Electronics and IT, cited the EPFO data and said “in April, May, June, July and August, on an average 15-16 lakh jobs got generated every month in the country”.

Even the Economic Survey tabled in Parliament on 31 January said that “an analysis of the latest EPFO data suggests significant acceleration in formalisation of the job market, driven by both new formal jobs and formalisation of existing job

Also Read: India doesn’t care about GDP. What matters is JDP — Jobs Data, Please

‘Data: flawed indicator’

Economists, however, feel that the EPF data is a flawed indicator because of the various limitations associated with how it captures data.

“The EPF data gives the impression that it is up-to-date and complete but it is not,” R. Nagaraj, Professor at the Indira Gandhi Institute of Development Research told ThePrint. “First of all, EPF is not actual payroll data. Payroll means every person who gets a pay cheque. EPF only refers to those who are registered on EPF, which applies to factories/companies with 20 or more workers.”

Further, Nagaraj explained, there is an upper limit as well, where employees earning a monthly salary of over Rs 15,000 do not have to be registered on the EPF rolls. “So, it is a truncated section of organised sector employment, which is itself less than 10 per cent of the total employment,” he added.

The EPF also does not apply to entrepreneurs and those who own their own businesses, Centre for Monitoring Indian Economy (CMIE) Managing Director and CEO Mahesh Vyas explained.

This minimum-number-of-employees limitation leads to another problem as well, which potentially leads to artificial inflation of the monthly numbers, Vyas added.

“When a company has less than 20 employees, it is not required that people employed by that company are registered under EPFO,” Vyas said. “If you have a company that had 19 people employed and it added one more, it would look like 20 people got added to the organised sector employment today, whereas there was an addition of only one employee.”

Yet another issue with the way the EPFO maintains its database has to do with how it handles those who change jobs or leave a job only to be employed again after a few months.

For example, if a person leaves a job and joins a new work place in less than six months, then the EPFO does not register the intervening months as unemployed time. It is only after six months of non-contribution to the EPF that a person can opt out of the EPFO rolls.

‘Many don’t take out money even after retirement’

To compound the problem, Vyas pointed out that many people do not take out their money once they retire because the EPF offers attractive returns. As far as the EPFO is concerned, these people are still employed.

In fact, such is the problem with data collection in the EPFO rolls that the Chief Economist of the State Bank of India reportedly made a presentation in January 2018 to PM Narendra Modi pointing out that the rolls show members over 100 years old and several below 18 years of age.

The presentation noted that 30-40 per cent of the EPF data was “unclean”, meaning only some of the data was useful with all of the fields populated properly.

There is also a situation where smaller companies and factories willfully avoid registering themselves with the EPFO because it would involve making statutory contributions on behalf of their employees.

“While it (registration) is mandatory, its violation is very wide. At the lower end of the spectrum, there is also a lot of mobility of workers. So, one doesn’t know how much of this is being captured,” Nagaraj said.

ThePrint reached out to MoSPI to understand what it uses the EPF data for, whether it is aware of the data issues raised by economists, and what it is doing to rectify these issues. No response was received at the time of publication of this story. It will be updated when a response is received.

(Edited by V. S. Chandrasekar)

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