The Hindu Business Line : Contribution conundrum

The Central Board of Trustees (CBT) would be well advised to proceed with caution on the issue of raising employers' contribution to the provident fund with a corresponding hike in that of the employees. The rate of contribution to the fund has been raised in the past and the CBT may be tempted to conclude it is just one of those periodic adjustments to cater to the needs of a vast working class population. But this would be ignoring the dramatic changes that have happened to the composition of the economy post-liberalisation, with agriculture yielding its pre-eminent place first to industry and, more recently, to the services sector.

What this means is that many assumptions about the economy that there were thought inviolable to its functioning have increasingly come under challenge in recent years. The nature of social security for those employed in the organised sector and how that burden ought to be shared between the employer and the employee is one such. For instance, how justified is the proposition that there should be parity in the contribution between an employer and the employee for a fund set up to provide income security for the latter's post-retirement years? It could be argued that wages in the organised sector in the initial years were of necessity at subsistence level, because of the weak bargaining power of the worker and the poor profitability of the employer, as neither scale economies nor process efficiencies were embedded in the production process. In such a situation any approach to social security planning might regard the employee's contribution as the maximum sum of money that can be set aside by him for the future, without compromising on the minimum level of consumption today.

Viewed thus, the contribution by the employer could well be regarded in the nature of topping up to make up for the shortfall in the corpus needed for securing a reasonable level of income security. Incidentally, that may happen to be a matching contribution from the employer. There is nothing on record to suggest that income levels have not risen for employees in the organised sector as to inhibit their capacity to provide for their old age in a greater measure. If, on the other hand, it is the CBT's case that an employer must assume a greater responsibility for the social security needs of his employees, notwithstanding the latter's rising income levels, then too a persuasive case needs to be made out.

But the somewhat mechanical manner in which an identical hike in the respective contribution rates has been proposed suggests that the CBT has chosen to ignore the dynamics of employer-employee relations, at least insofar as the compensation levels are concerned. A wider public debate might help dispel such an impression.

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