#dnaEdit: Priceless safety net

The Employees’ Provident Fund Organisation’s renewed push for investing in public sector stocks is welcome, but it should be undertaken carefully. The EPFO is the trustee of retirement savings amounting to nearly Rs7 lakh crore collected from nearly five crore subscribers. The availability of such a huge corpus for re-investment at a time when the Centre, burdened with a huge fiscal deficit, has been struggling to mop up revenues, has been too attractive to resist. Only six weeks ago, the EPFO’s central board of trustees had rejected a finance ministry proposal to invest in equities and exchange-traded funds. That the EPFO has won the approval of two trade union representatives on the board indicates that the unions see high-returns public sector stocks as a lesser evil. With the Centre embarking on a huge disinvestment drive post-Diwali of its Coal India Limited, ONGC and the National Hydroelectric Power Corporation shares, the EPFO move appears to be timely. 

However, the EPFO must resist the calls for greater participation in the stock markets. The experience of the 2008 financial crisis when most pension funds, invested in private stocks and derivatives, were wiped out by the market crash should serve as an enduring reminder against such adventurism. In contrast, investing in public sector undertakings, is to an extent insured by the government. Besides, their exposure to financial markets is limited. But even as the EPFO earmarks funds for market-friendly reforms, provident funds also offer scope for a much greater public cause. While announcing a universal account number for provident funds, Prime Minister Narendra Modi bemoaned the Rs27,000 crore lying in inactive accounts left behind by employees who changed, left or lost jobs but were unable to transfer or withdraw their funds. Utilising even a fraction of this corpus to create a social security fund for monthly allowances to unemployed workers is a keenly felt need of the times. This is something Modi must consider if he proceeds towards “big-bang” labour reform allowing hire-and-fire policies. Perhaps, an unemployment insurance scheme into which the employee pays a small premium can be tagged along with the monthly PF deductions.

With contractualisation of labour becoming the norm even in government departments, it has created two classes of employees within the same company; those with and without employment benefits. It is imperative then that more workers come under PF coverage. Last year, the EPFO asked India Inc and government departments to ensure that contract labour hired through a contractor agency, to which companies make lump sum payments, including the employer’s PF contribution, is not pilfered by contractors. The EPFO reiterated that principal employers were liable for PF payments of their payroll, contract and casual workers. Early this year, the central labour commissioner found nine central ministries, including the labour ministry, defaulting on PF contributions to contract employees. In July 2013, dna reported that over one lakh companies had connived with EPFO officials to siphon off Rs3,450 crore. Surprisingly, these also include bellwether companies, an indication of the rot and the failure of oversight mechanisms.