EPFO-data based study raises questions; reminds its time India overhauled its payroll reporting method

If one goes by a study done jointly by Pulak Ghosh of IIM Bangalore and Soumya Kanti Ghosh of State Bank of India on the number of new jobs created in India based on data from the Employees' Provident Fund Organisation (EPFO), Employees' State Insurance Corporation (ESIC), General Provident Fund and National Pension System (NPS), the job scenario in India isn’t as bad as generally perceived.

In other words, it tells us the long-standing narrative of jobless growth is a myth. More importantly, it shows the big inefficiency deeply embedded in the employment data collection process and reminds that Asia’s third largest economy should press hard to embrace a better payroll reporting methodology. The study (read a Business Standard report here) titled “Towards a Payroll Reporting in India”, estimates that 3.68 million jobs were generated till November of fiscal year 2018, which would imply 5.5 million in the entire year. This is a significant break from what we already know so far.

In India, there isn’t yet a robust data collection machinery to understand job trends. So far, the major sources for this is the not-so-frequent data put out by the Labour Bureau, some private organisations such as the Centre for Monitoring Indian Economy and reports from multilateral agencies. The outputs of these are largely based on sample surveys and often rely on outdated data. For this reason, such outcomes have been disputed by economists and economic observers.

Representational image. Thinkstock.

Representational image. Thinkstock.

The method of looking at EPFO data and similar figures (like employee insurance) to understand the employment scenario of the country could be better. According to government’s own data, in the three years of Modi rule, unemployment has actually gone up — in 2015-16 to 5 percent from 4.9 percent in 2013-14, the year before the BJP assumed power. Going by this, the renewed focus on reforms never translated into job creation.

Clearly, the EPFO-based study contradicts this. As this Financial Express report explains (read here), the EPFO’s raw data suggest there are 8.7 crore member accounts. But the authors of the report removed two crore accounts finding the data was incomplete.

Further, “another one crore accounts were removed because they came in via various amnesty schemes given to firms which needed to be deducting EPFO contributions but didn’t. The names were also run through various de-duplication software to ensure their uniqueness.” However, the study findings tells us that it is time India overhauled its employment data machinery and moved to an improved payroll reporting. The method used by the Ghosh duo can be a good model to work with.

But these findings need to be seen in the backdrop of two critical factors: First, an EPFO-based employment mapping doesn’t capture data in the informal sector given that EPFO doesn’t cover them. The informal sector is where maximum number of Indians is employed at, majority of them unskilled laborers. This is also the segment where demonetisation played havoc in late 2016 sucking out cash overnight and paralyzing the system for a good six months.

The large scale drift from factory jobs to daily wage jobs under the government’s employment guarantee scheme too signaled that informal sector is having its own share of problems in the aftermath of the note ban. What could we do to map the employment trends real time in this segment? The government needs to think deep on this.

Second, there is a seeming disconnect with the key macro-economic numbers and what the Ghosh duo employment study shows. This disconnect is also evident in the consumption, investment trends over the period under consideration. Why would an economy send out differing, contradicting signals? The conclusion is one set of data is wrong in depicting the ground reality. If enough jobs are being created over the last year, why doesn’t it correlate with the private consumption trends, demand–revival and investments? This is a question that begs an answer.

Even if the EPFO-job data is correct and the job scenario is not depressing, the Narendra Modi government shouldn’t alter its focus from job creation. This is because there are far too many youngsters out there entering the job market every month — a number much beyond what the job market can accommodate as of now. What does the government have in mind to take the employment-agenda ahead? This is something that will be watched closely in the Union Budget. But, right now, quality data is needed to understand the ground reality. The EPFO-based job data study by the Ghosh duo can be a good start to work out a new payroll model.

For full coverage of Union Budget 2018, click here.

Published Date: Jan 18, 2018 12:28 PM | Updated Date: Jan 18, 2018 13:02 PM

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