EPF subsidy model: The benefit of sharp focus

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Joblessness or high unemployment rates have been the worst fallout of the Covid-19 pandemic. Millions of jobs have been lost and the wages of many were slashed. While the unorganised sector was the worst hit due to the lockdowns and mobility restrictions, the organised sector, too, suffered tremendous stress.

The Atma Nirbhar Rozgar Yojana that pays the provident fund contributions of employees as well as employers for units with up to 1,000 employees – in other words, 24% (12% + 12%) of the basic salary of the worker – is precisely targeted to creating blue-collar workers, the segment that has suffered the most in the restrictions. For units with more than 1,000 employees, the government pays 12% of the employee’s contribution.

The objective is to incentivise employment by partially defraying the fixed cost of a business. The policymakers seem to be successful in the objective since the beneficiaries between October 2020 and June 18 number about 21.42 lakh. As many as Rs 902 crores have been paid so far to these beneficiaries who work for 79,577 establishments. The subsidy scheme has been extended till the end of FY22.

This has hit the bullseye. Only those workers who are paid up to Rs 15,000 a month are eligible. Moreover, it is being paid for employees who were not earlier registered with the Employees Provident Fund Organisation, or in other words, for creating fresh employment. Labour cost is one of the important fixed cost elements in any business and if a part of it is borne by the state, entrepreneurs might feel encouraged to set up a business.

Keeping the success of this intervention as a model, our policymakers need to devise more avenues for direct and effective intervention to create employment in different sectors. One of the sectors that urgently need policy support is the vast and amorphous world of the unorganised sector.