 "Under such an agreement, an employee working in a foreign nation is exempt from paying into the social security programme of that nation. Representational Image/ Freepik.")
India is pushing a clause on social security contributions in all its trade deals.
This includes the bilateral trade agreement (BTA) currently being negotiated with the United States.
India most recently did so in its free trade agreement with the United Kingdom.
It also has such a pact with nearly two dozen other nations including several in Europe.
Sources in the Ministry of Labour and employment have said that this will be standard in all trade agreements henceforth.
But what do we know about the social security pact, also known as the double contribution convention agreement?
Let’s take a closer look:
What is it?
A social security pact is an agreement between two or more nations.
It is also known as social security totalisation agreement or a bilateral social security treaty.
Under such an agreement, an employee working in a foreign nation is exempt from paying into the social security programme of that nation.
However, when it comes to calculating their pension, they still receive full benefits.
India has such double contribution convention agreements with nearly two dozen nations.
This includes Belgium, Canada, Japan, Australia, France, Denmark, South Korea, Germany, Sweden, Switzerland, the Netherlands and Brazil.
The most recent such agreement was reached with the Keir Starmer government in the United Kingdom.
Under this pact, Indian workers are exempted from paying into the UK’s social security scheme for three years.
The UK has agreed to this proviso. The treaty is awaiting ratification by the UK Parliament.
“UK is believed to have agreed on the social security component under the FTA negotiations, which would be ratified in the near future,” a source said.
India is also pursuing this pact with the US in its trade deal.
“It has also been taken up with the US, but it is not clear as of now if the US will accept India’s demand", a government source told Economic Times.
Indian employees abroad have to obtain a certificate of coverage from the Employees’ Provident Fund Organisation (EPFO) to be exempt from having to contribute to local social security schemes.
Why is India doing this?
India is doing this to protect its overseas workers.
This frees them from the burden of contributing to another country’s social security and get nothing back in return.
“Our professionals, especially from the IT sector, go overseas to work in large numbers. However, despite contributing a hefty amount, they currently do not get the benefits if they return after a short period of three years. We want to ensure that this does not happen. That is why we are pushing to include social security agreements in all FTA negotiations,” a Labour Ministry source told The Print.
Instead, Indians can simply continue to contribute to the Employees’ Provident Fund Organisation (EPFO) scheme in India and avail the benefits once they return.
“We are doing so to promote social security for all”, labour and employment minister Mansukh Mandaviya has said publicly.
The move also helps save money for employers abroad, who would otherwise have to pay into social security schemes in multiple nations.
Many of these companies hire Indians, and such a pact gives them an added impetus for continuing to do so.
In the UK, for example, this was a long-standing demand of employers.
It was estimated that an Indian professional working in the UK costs his or her employer Rs 56,000 every year merely in the compulsory National Insurance (NI) contribution.
This does not even include the other taxes and health surcharges that the employer has to pay out of his own pocket towards the UK’s National Health Service (NHS).
Experts say such a pact also facilitates free movement of labour.
This is because citizens of those 22 nations India has signed this pact with also receive the same benefit when they work in India.
About Free Trade Agreements
Free Trade Agreements are trade deals between two or more nations.
The idea behind it is to do away with or decrease entirely customs duties on the overwhelming majority (90 to 95 per cent) of goods traded between them.
An FTA also massively reduces non-trade barriers on a significant number of imports from partner nations.
It also relaxes norms to promote services exports and bilateral investments.
There are currently at least 350 FTAs in force across the world.
Most nations have signed at least one or more FTA.
FTAs can also be called Preferential Trade Agreements (PTA) or Regional Trade Agreements (RTA) or Bilateral Trade Agreements (BTA).
The WTO uses the abbreviation RTA to represent all types of such economic engagements.
If two or more countries agree to reduce or eliminate duties on a specified number of goods, it is termed a preferential trade agreement (PTA) or Early Harvest Scheme (India-Thailand).
Certain agreements are also named CECA (Comprehensive Economic Cooperation Agreement - India-Singapore) or CEPA (Comprehensive Economic Partnership Agreement - India-Korea) or BTIA (Bilateral Trade and Investment Agreement - India-EU) or TEPA (Trade and Economic Partnership Agreement).
With inputs from agencies