CHAPTER-VII TYPES OF FUNDING OF SOCIAL SECURITY MECHANISMS IN INDIA - THE PREVAILING STRUCTURE

Transcription

1 CHAPTER-VII TYPES OF FUNDING OF SOCIAL SECURITY MECHANISMS IN INDIA - THE PREVAILING STRUCTURE 7.1 Introduction There is a broad consensus among social policy experts, planners and administrators that every member of the society should have a minimum level of social protection. Social Security is an integral part of human development and social progress. The fundamental aim of social security is to give individuals and families the confidence that their level of living and quality of life will not, in so far as possible, be greatly eroded by any social or economic eventuality.1 The concept of social security originated from the notions of welfare state and has connotations of arranging for contingencies for populations in the event of their inability to work or being subjected to sudden dispossession of productive capacities. The provisions relating to social security conceptualize promotional as well as protection measures, which will respectively take care of deficiency and adversity. 1 "Into the Twenty First Century: The Development of Social Security(1984) International Labour Organisation, Geneva, at 23.

2 239 They refer, on one hand, to the problem of deficiency of those who are not in a position to access minimum resources to meet their economic and social requirements for a dignified life in a society, on the other hand social arrangements in wide ranging contingencies arise out of human life and work, such as ill-health, injuries and accidents, unemployment, maternity, old age, death of an earning member and so on. The concept of social security is based on human dignity and social justice. The underlying idea is that social security measures would be allowed to a citizen who has contributed or is likely to contribute to his country's welfare and he should be given protection against certain hazards. 2 Social security benefits may be either social insurance benefits (earned benefits) or social assistance benefits (need-based benefits). Social insurance benefits signify that workers and employers need to pay contributions in order to finance insurance benefits. Insurance -based social security schemes depends on revenue willingly provided from wages by employers and employees to earn entitlement to individual and family, benefits in adversity, including unemployment, sickness, 2 Otis Elevator Employees' Unions. Reg v Union of India, (2003) 12 SCC 68.

3 240 disability, bereavement and retirement benefits.3 Social assistance benefits are provided to helpless persons from the State exchequer raised through tax revenues. Tax-financed Social assistance schemes will be crucial for some groups who are unable to work, such as children, the severely disabled and the elderly of advanced age. Social assistance schemes are indispensable in ensuring social security as it is unlikely that every person can be adequately covered through social insurance system. The idea behind social assistance scheme is to ensure minimum standard of life in case of economic and social distress. Social security is a world-wide phenomenon, which is not restricted to developed countries. Today, state based social security in form of social security programs exists in 172 countries.4 However, it is estimated that more than two billion people in the world are not covered by any type of social security protection, i.e. neither by a contribution-based social insurance scheme nor by tax-financed social assistance.5 While social security provided by the state or state initiated organisations covers most of the labour force in the organised sectors of the public and industrial 3 Schein, M., The Right to Social Security, Economic, Social and Cultural Rights: A Textbook, A. Eide, Krauss & Rosses (eds), 1995, at US SSA (1997): Social Security Program throughout the World US Government, Social Security Administration, Research Report Van Ginneken, W. (1997) Social Security for the Informal Sector: Issues, Options and Tasks Ahead' Working Paper. ILO-Geneva.

4 241 employment, the vast majority of the unorganised rural population and people in the informal urban sector are left out.6 7 The introduction of social security programmes in developing countries like India is a difficult task as capital markets are under developed, budget restrictions are high and are usually characterised by traditional labour structures and large levels of poverty, which would require social security programmes to achieve a big target that few Governments in developing countries are able or willing to implement. In addition, Governments in these countries have, in general, less capacity to collect taxes, implement complex programmes of social protection. Further, political pressure against the implementation social security policies is also often high in developing countries because such policies may imply large economic burdens on Government. 7.2 Importance of Social Security Policy There is no doubt that appropriate social security policies would play very important impact on the development of a country. Adequately targeted 6 Singh, H. (1994): ISSA Studies on Extension of Social Security to Unprotected Groups in Asia and the Pacific. In: Sankaran, T. et al. (eds): Social Security in Developing Countries. Friedrich-Ebert-Stiftung. New Delhi: Har-Anand Publications. 7 Radian A. (1980) Resource Mobilization in Poor Countries, Transaction Books, London.; Newbery D, Stem N. (1987). The Theory of Taxation for Developing Countries, Oxford University Press, Oxford.

5 242 policies aimed at protecting individuals and households against socioeconomic shocks improve living standards and strengthen livelihoods. They also increase the productive capacity of the poor and thus increase their potential to secure employment, improve their productive capacities and increase incomes. This in turn, benefit economic development as a whole, since as a result of higher incomes, the human capital capacity of the country will be strengthened and the country benefit from increased social stability Q as jobs and incomes become more secure. As discussed earlier, a State may not be in a position to provide social security for all its citizens because of financial constraints. But as a Welfare State under the Constitutional mandate, a State must provide at least basic minimum necessary for the survival of its citizens. State bears the responsibility for providing and ensuring an elementary or basic level of security, and leave room for partly or wholly contributory schemes. This will mean that the responsibility to provide a floor level social security will be primarily that of the State, and it will be left to individual citizens to acquire higher levels of security through contributory participation. Such a system would minimise the responsibility of the State, and maximize the role and 8 "Social Security in developing countries: myth or necessity? -Evidence from India, Patricia Justino Prus Working Paper No. 20( 2003) University of Sussex Falmer, Brighton, U.K

6 243 share of paying capacities of the employee and the employer. Where there is no employer who can be identified, as in the case of the self-employed, or those whose income is too low to permit them to make adequate contributions, the State will substitute the employer or the employees as the case may be, and assume the responsibility to supplement the contributions of the beneficiary workers. 7.3 Social Security Benefits and Industrial Labour In India, there are several legislations that provide social security benefits covering health care, disability and old age income security for the workers in the organized sector. In the initial years of development planning, it was believed that with the process of development, more and more workers would join the organized sector and eventually get covered by formal social security arrangements. However, experience has belied this hope. The opening up of the economy, under the regime of economic reforms, has only accelerated the problem. There is now almost a stagnation of employment in the organized sector with the resultant increase in the inflow of workers into the informal economy.9 9 Report Of The Working Group on Social Security for The Tenth Five-Year Plan, , Planning Commission, Government of India, October

7 244 The extent of workforce in the organised and unorganised sectors 1983, and variation in their number over the period of time could be understood by the information provided by the Ministry of Labour and Employment, Director General of Employment and Training, Government of India. The share of organised workforce was about 8 per cent in 1983, which declined to 7.54 per cent by The corresponding share of unrorganised workforce was about per cent in 1983, which increased to per cent by Trends in Employment in Organised and Unorganised Sectors in India Year Organised Unorganised Total force (in millions) (7.93) (92.07) (7.93) (92.07) (7.31) (92.69) (7.08) (92.91) (7.54) (92.46) Source: Ministry of Labour and Employment, Director General of Employment and Training and Economic Survey (various years) Note : Figures in brackets are percentages to the respective totals. Government of India is spending very meager amount on social security even lesser than countries like China or Sri Lanka. According to the

8 245 World Labour Report (2000), the public sector expenditure on social security in India was 1.8 per cent of the GDP, whereas it was 4.7 per cent in Sri Lanka and 3.6 per cent in China Judicial Reflections on Right to Social Security As already discussed it is clear that the industrial workers who are employed in organised sector and the workers employed in some specific unorganised sectors wherein the relevant existing legal regime is applicable are assured of a measure of social security benefit in the manner provided. The entitlement to social security benefits by any deserving worker would depend upon the funding structure created under the relevant legislation under which he is entitled for the benefit. Right to social security is very important for workers who belong to most vulnerable section of society, whom a small change in income shall make them destitute. It is a question of survival for the worker and his family during the period of unemployment. Thus touches the issue of right to life. As observed by the Supreme Court in Consumer Education & Research v. Union of India* 11, that the expression 'life' assured in Article 21 does not connote mere animal existence or 10World Labour Report (2000), Income Security and Social Protection in a Changing World, International Labour Organisation Geneva SCC (L&S) 604.

9 246 continued drudgery through life. It has a much wider meaning which includes right to livelihood, better standard of living, hygienic conditions in the workplace and leisure facilities and opportunities to eliminate sickness and physical disability of the workmen. In C.E.S.C. Ltd. v. Subhash Chandra Bose,12 the Supreme Court has held that the right to social justice is a fundamental right. Right to livelihood springs from the right to life guaranteed under Article 21. The health and strength of a worker is an integral facet of right to life. Right to human dignity, development- of personality, social protection, right to rest and leisure are fundamental human rights to a common man. Right to life and dignity of person and status without means are cosmetic rights. Similarly in Air India Statutory Corporation v. United Labour Union 13 is an epoch making judgment on issue of right to livelihood, where in the Supreme Court held that the workmen have a fundamental right to life. Meaningful right to life springs from the continued work to earn their livelihood. The right to employment, therefore, is an integral facet of right to life. Further, in Murlidhar Dayandeo Kesekar v. Vishwanath Pandu 12 (1992) 1 SCC 441 at LLR 288.

10 247 Barde14, the Supreme Court held that right to economic empowerment to the poor, disadvantaged tribes and depressed and oppressed Dalits is a fundamental right to make their right to life and dignity of person meaningful and worth living. Social security protection measures guarantees a dignified living in cases of deprivation of means to enjoy life on one's own efforts. Social security recognizes the responsibility of society to relieve the economic distress faced by the people on account of contingencies beyond their control Methods of Funding - The Prevailing Structure The need for social security can be argued on the basis of social justice or social equality, as well as in terms of securing social and political stability.15 Hence the well planned Funding structure is vital issue for any social security benefit mechanism for its effective implementation. The laws pertaining to social security mechanism as prevailing in India envisage broadly four types of funding structure namely: suppl. 2 SCC Andereasaen, B., Article 22, The Universal Declaration of Human Rights: A Common Standard of Achievement", G. Alfredsson & A. Bide (eds), 1990, at 453.

11 248 (i) (ii) (iii) (iv) Fund created from the contributions of the employer and the employee; Fund created by the contributions from the employer, the employee; and the State Exclusive funding from the employer; and Exclusive funding from the State Under the first kind of social security funding mechanisms benefits are provided from the funds that are constituted from the contributions from both the employee and the employer. The employee s contribution towards social insurance fund is universal feature. This way a part of total cost of the social insurance is collected from the beneficiaries. The employee s contribution helps in collecting enough funds which in turn help in providing sufficient benefits to them. This also helps beneficiaries a basis for right to benefits. It gives them a right to participate in the administration of and implementation of the scheme. And prevent abuse of the scheme. This will ensure economic and efficient administration of the scheme. Employees contribution is one of the chief characteristics to distinguish social insurance from social assistance. Contributions save the benefits from the stigma of charity or poor relief this is why the insured persons cam pay and like to pay

12 249 and would pay rather than not to do so. 16 The Employees State Insurance Act, 1948, the Employees Provident Funds and Miscellaneous Provisions Act, 1952, are identified under this type of mechanism. Under the Employees State Insurance Scheme, contributions from the employees and the employer are collected and pooled into one centrally administered Fund directly under the supervision and control of Central Government. The Scheme is administered by a multi party body called the Employees State Insurance Corporation. The Fund is utilized for payment of various benefits like maternity, disability benefit, sickness benefit, medical benefit etc. With the approval of Central Government the Corporation is also investing a part of the fund in various fields for better returns. Another legislation which provides social security benefits under contributory principle is the Employees Provident Funds and Miscellaneous Provisions Act, This Act is enacted to make provision for the future of the industrial worker after he retires or his dependents in case of his death. The Act provides for compulsory contributions collected from the employees and employers which is pooled in to one Central fund which is 16 William Beveridge, Social Insurance and Allied Services, (London : H.M.S.O., 1942) at 308.

13 250 administered by the Central Government. These contributions together with periodic interest are credited to the individual account of the member. When specified contingency such as old age, invalidity or death occurs, the total amount in the account is paid to the worker or his survivor. Some funds permit earlier partial withdrawals for construction of house or for daughter s marriage etc. Even though Provident Funds are important in promoting self-help, they are not social security schemes, in the conventional sense, geared to provide periodical payments when wages are interrupted. A provident fund benefit is a terminal pay, with little relevance to age or the circumstances in which the employment ends, and there is no pooling of risks. Further, in an inflationary situation where contributions loose much of their value. Despite these shortcomings provident funds remain the only source of old age protection in India. Some employers also include additional benefits such as sickness and maternity benefits. Members of provident funds prefer lump 1 7 sum payments which they can use to meet their capital needs. The Provident Fund Act also provides for two more Schemes, the Employees Pension Scheme and the Employees Deposit Linked Insurance 17 R.K.A. Subramanya India 50 years of Independence: , Status, growth and development B.R. Publications, New Delhi (1997) at 40.

14 251 Schemes which are insurance schemes where in benefits given to the member of the scheme in cases of certain contingencies. Under these schemes the rates of contributions are fixed statutorily but the benefits are varying according to actuarial valuation. There is a general feeling that the benefit structure of these schemes is very much conservative as compared to the rates of contributions and there is demand for their liberalization. The income on these investments would be higher but for the fact that they are required to be compulsorily invested in the Public Account of the Government on which they earn interest at a comparatively low rate while the investments of the balances of the Provident Fund carry higher rate.18 There is an obvious need for better system of investments to ensure better returns without scarifying safety and liquidity. One interesting aspect is that today thousands of crores of rupees is identified as unclaimed amount under Provident Fund. The reason for this is the abrupt discontinuation in the employment by the employees. Usually Provident Fund Accounts are maintained by the Employees Provident Fund Organisation, establishment-wise. When employee changes his employer, his provident fund account will have to be transferred from one establishment to another. If it is not done that account will remain inoperative. Basically the IS Id. at. 220.

15 252 inherent reason for this is non implementation of Industrial Employment Standing Orders Act, However, the Government has not paid any attention for this core issue. A well structured mechanism with a well defined software technology covering the particulars of the employees who are covered under these legislations is the need of the hour. The second type of social security funding mechanism involves the participation of the employee, employer and the State in creating the Fund for the purpose of providing benefits. The tripartite contribution principle ensures the availability of adequate funds for stipulated benefits. Employer s contribution represents the responsibility of industry towards its workers. Similarly workers contributions represent their responsibility towards themselves and their dependents, while States subsidy represents responsibility of welfare State towards its citizens.19 In this context the sector specific social security legislations enacted by the Central Government as well as the State Governments are identifiable. These legislations provide more or less a system wherein the contribution of the employee is levied from monthly wages towards the Fund created there under. As far as the employer s contribution is concerned 19 DR. Deepak Bhatnagar, Labour Welfare and Social Security Legislation in India (New Delhi: Deep and Deep publications, 1984) at. 114.

16 253 it is based on a method which is quantifiable in relation to the process of production related issue of by way of cess. The collection of contribution from the employer under the State Government enacted legislations is slightly different. Strictly speaking some States like Maharashtra, Tamil Nadu, and Kerala are not levying any contributions on the workers from their monthly wages. Only one time contribution called as registration fee subject to renewal by payment of nominal fee periodically is collected. The third type of social security funding mechanism is Employers Liability Schemes wherein liability is met exclusively by the employer from his own sources. Some employers have insured their liability but most meet the costs themselves. The Payment of Gratuity Act, 1972, the Employees Compensation Act, 1923, the Maternity Benefit Act, 1961 provide social security benefits under employers liability schemes. The Payment of Gratuity Act, 1972 provides for payment of gratuity to an employee on the termination of his employment because of superannuation, retirement, resignation, death or disablement due to accident or disease, provided he has rendered continuous service of not less than five years. Amount of Gratuity is a sum at the rate of fifteen days wages for every completed year of service. The Act, however, provides for

17 254 compulsory insurance of liability unless the employer has created a Gratuity Fund and it is approved by Income tax authorities. Under this Scheme, every month the employer need to keep certain amount aside in respect of each employee and this amount is pooled in to one account which is called the Gratuity Fund. Gratuity benefits are paid from this fund. The Act requires the employer to pay gratuity within thirty days from the date it becomes due. The Act imposes a huge financial statutory obligation on the employer. Similar kind of mechanism is found under the Employees Compensation Act, As already seen in the earlier Chapters the employer is liable to pay the compensation to his workman in case of death or disability suffered by the employee. The rate of compensation varies depending upon the nature of disability. This legislation is applicable even to the small entrepreneurs and the industrial establishments wherein the provisions of the Employees State Insurance Act, 1948 is not applicable. Under this Act, liability to pay compensation is entirely on employer. It is open to him to insure the liability or create a fund for the purpose. Some employers have insured their liability but most meet the costs themselves. Unfortunately in India, we have not heard of any instance of structured creation of fund by the employer under this Act to meet the huge contingent

18 255 burdens. Under this Act, the small employers are burdened with the liability to pay the amount of compensation which is extremely a contingent issue. In such a situation, there is always a possibility that the employer may deny in making the payment especially when the liability is high. Even where the liability is not high, there is always a possibility on the part of employers, especially small employers to contest claim to avoid the payment. Taking note of this issue, the National Commission on Labour, 2002 had recommended that the liability under Employees Compensation Act should be converted from an employers liability scheme to a social insurance scheme.20 The Government has not given serious attention to the recommendation. The Maternity Benefit Act, 1961, also provides social security benefits under the principle of exclusive liability of employer. The Act provides maternity benefit to women worker, at the rate of the average daily wage for a period of twelve weeks. Such woman is also entitled to medical bonus of Rs The Act also provides for an additional leave with pay up to one month, if the woman shows proof of illness due to the pregnancy. To be 20 Report of the National Commission on Labour (2002),(New Delhi), Ministry of Labour, Government of India., at 201. t * t

19 256 eligible for maternity benefit, she must have worked at least for eighty days under that employer. As the liability to pay maternity benefit is solely on employer, which is main cause for frequent evasion of the Act. The National Commission on Labour, 1969 has observed that, the responsibility for maternity benefit induces a tendency among employers not to employ women or having employed them, to discharge them when pregnant. 21 In this context the Commission had recommended for the setting up of a Central Fund for maternity benefit. A similar view was expressed by the National Commission on Self Employed Women and Women in Informal Sector (1988). Even the National Commission on Labour, (2002) while commenting on the Maternity Act, recommended that the scheme of the Act should be converted into social insurance. This object can be achieved if the Maternity Benefit Act is integrated with the Employees State Insurance Act. If that is not feasible, the question of introducing a separate social insurance scheme exclusively for maternity benefit or in combination with the employment injury benefit may be considered. So far as women in the unorganised sector are concerned, there is undoubtedly a need for a separate 21 Report of the National Commission on Labour (1969), (New Delhi), Ministry of Labour, Government of India.,at.166.

20 257 legislation for providing maternity benefits. Its implementation is possible through Welfare Funds or area-based schemes.22 But these recommendations of high power Committees are not yet implemented by the Government as already pointed out. Under the State funding Social Security mechanism, the State undertakes the entire burden of funding of social security benefits. However in India, there is no specific legislation which provides for exclusive funding by the State for administering the social security benefits to the workers. This type of commitment is evident in non statutory social security schemes promulgated by the Central Government from time to time as a popular measure. As seen already in the previous Chapter, these schemes are target oriented in contrast to universal application. The Central Government has brought these schemes to provide maternity benefits, food and nutrition, housing, health, education, employment security and old age pension benefits etc to the poor section of the society targeting mainly those who come under below poverty line (BPL) category. Important among them is National Social Assistance Programme. The programme has five main components like Indira Gandhi National Old Age Pension Scheme, Indira 22 Report of the National Commission on Labour (2002),(New Delhi),Ministry of Labour, Government of India., at. 105 V ** a.* ;

21 258 Gandhi National Widow Pension Scheme, Janani Suraksha Yojana, National Family Benefit Scheme, and Indira Gandhi National Disability Pension Scheme.23 Even though the Government is spending huge amounts to the tune of crores of rupees on these schemes, expected results are not visible. Experiences of working of these schemes has shown that lack of political will and various loop holes in the administration set up are main hindrance in reaching the target. In a nutshell, at present all these social security benefit mechanisms are covering mere twenty percent of industrial workers. Most problematic and undesirable aspect of social security systems in India is involvement of multiple Government agencies. This multiplicity of agencies and overlapping of programmes lead to diffusion of energy and resources. There is urgent need for the Government to think seriously about this issue. Need for comprehensive social security policy is essential in order to extend wider and effective coverage and of social security measures. There is a strong case for viewing social security systems as an integral part of the overall economic, social, human resources and political management. 33 These Schemes are discussed in detail in the Chapter VI