Social security in India: The fragile shield faces growing economic challenges

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Social security in India: A growing number of salaried workers are finding themselves without social security coverage in the aftermath of the pandemic. This trend appears counterintuitive, especially since the pandemic has underscored the need for public assistance. The latest data from the Periodic Labour Force Survey (PLFS) reveals a decline in the proportion of salaried or regularly employed workers – from 23% in 2019-20 to 21% in 2022-23. Concurrently, there has been an uptick in the number of salaried workers ineligible for social welfare.

In the fiscal year 2023, over half of those in regular or salaried jobs lacked eligibility for any social security benefits, a figure that has risen compared to five years ago. This trend is particularly concerning in the organised sector, and likely even more severe in the unorganised sector.

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Social security in India

There is a clear link between robust social safety nets and higher happiness indices. The Nordic countries, known for scoring high on happiness indices, attribute much of this to their comprehensive public welfare schemes, including child benefits, parental leave, healthcare, and education. Social security typically encompasses insurance programs like pensions, health insurance, maternity benefits, and gratuity.

However, the availability of social welfare in India is on the decline. Since the coronavirus pandemic, growth in non-farm jobs has slowed, failing to keep pace with the increasing number of young job seekers. This decrease in social security benefits reflects a deterioration in job quality and a reduction in jobs offering benefits. Furthermore, real wages in nonfarm jobs have either stagnated or declined.

The rise of the gig economy has also led employers to offer less security to workers. Although the ‘Code on Social Security’ (2020) represents a positive step, India still has a long road ahead to enhance its social security systems.

Female workforce participation

Despite improvements in education among women, this has not translated into higher workforce participation due to the scarcity of quality jobs. A gender-based analysis reveals that social security programs cover fewer women than men, with 57% of women in regular jobs/salaried work lacking coverage under any social insurance program, compared to 53% for men.

In India, strict enforcement of safeguards like provident funds is lacking, especially in small-scale enterprises. These businesses often underreport employee numbers to avoid paying provident fund contributions and other social security benefits, even though they pay regular wages. Legally, enterprises with over 20 employees are required to provide these benefits.

The disparity in access to welfare schemes is stark between urban and rural areas. In rural areas, the percentage of workers ineligible for any benefits increased from 56% in FY19 to 60% in FY23, while in urban areas it remained unchanged at 49.4%.

The future path

Economists suggest implementing standardised protective measures, such as universal on-the-job accident insurance, currently offered by only a few corporations.

With India experiencing a demographic dividend, characterised by a larger youth population compared to the elderly, the need for enhanced safeguards like old-age social security, including pensions, is urgent. Emulating developed countries in implementing a universal pension scheme is crucial for India, particularly for the unorganised sector’s workforce. Investing in social protection not only yields economic growth and stability but also enhances the performance of national economies.

A universal pension scheme would not only alleviate the government’s financial burden but also stimulate economic growth and social welfare. By mandating contributions to pension funds from all working individuals, including those in the unorganised sector, a universal system could ensure a more equitable distribution of retirement benefits. Such a system would encourage savings and financial planning among the broader population, leading to increased economic stability for individuals in their later years.

By enhancing the purchasing power of the elderly, a universal pension system could inject liquidity into the market, potentially driving consumption and spurring economic activity. This approach would also transform societal attitudes towards the elderly, recognising them as integral and contributing members of society, rather than viewing them as dependents. The challenge is in devising a universal pension scheme that broadens coverage without straining fiscal resources.