+ Payroll Reporting in India: Commendable but Long Road to Go - CII Blog

Employment has emerged as an important subject in the development agenda of most national Governments and several international organisations over the past two decades. In the developed countries, persistently high and increasing unemployment rates have given rise to renewed concern for job creation, while in many developing countries productive employment is seen as a means for poverty alleviation. Given the importance of employment in policy making, a timely and reliable data is indispensable to identify significant trends in the labour market.

Measurement of accurate employment data remains a lacunae

India has seriously lagged behind in the estimation of employment in India. Measurement of job creation, employment and unemployment in India is usually done through statistical estimates from Household surveys, Enterprise/Establishment surveys, Administrative data and Data from Government schemes. For example, the Quarterly Employment Survey (QES) that was initiated post the financial crisis, more as a short-term response to monitor the disruptions post the crisis, has continued till date. The quarterly results of QES were marred by several limitations as it elicited response from only 8 sectors (against a universe of 190 sectors), results were released with a 9-month lag, all information was provided on a voluntary basis and not verified and not capturing employment data on new units.

Payroll reporting is a big step towards removing this lacunae

To bridge this gap, keeping in view India’s strong demographic dividend and around 93 per cent of the informal workforce, it was important to improve measures of employment through administrative statistics and complemented by periodic surveys. In this direction, Government has started bringing out estimates of new subscribers/members enrolling in large social security schemes like the Employees’ Provident Fund (EPF), Employees’ State Insurance (ESI) Scheme and the National Pension Scheme (NPS). The new members enrolling in these schemes are a good measure about the numbers in the workforce moving towards formalisation, as well as new jobs.

In fact, the EPFO data provides the data individually for states and industries also. This is in line with best practices worldwide. It is, in fact a step ahead of US payroll data that gives out payroll data only per industries and not states. The state wise data shows a broad-based payroll creation across pan- India. In India employment generation and improving employability have been the priority concerns of the Government. To give more thrust to these twin objectives, the Government has been focussing on implementing various programmes by simultaneously encouraging the private sector of economy, fast tracking various projects involving substantial investment and at the same time also increasing public expenditure on schemes.

There are many reasons to welcome this payroll reporting. The first and foremost among them is that the Government has moved away from a survey-based approach of assessing employment growth in the country and opted for the payroll data reporting based on actual data. However, there are still some niggling doubts about the quality of data. The numbers frequently get revised with the extent of revision being so great that it even raises questions with researchers in constructing a seasonalised and robust data from such a raw database. For example, the September 2017 EPFO payroll data which was first released in April 2018 is still being revised. Further, the classification of the EPFO job data needs a lot to be desired. For example, Expert Services, that constitutes the largest segment of payroll creation, does not tell us anything at granular level.

However, the robust use of data for reporting informal jobs is need of the hour

A logical corollary for the next step should thus be robust use of big data for counting informal jobs in India. We must also look at members of the population outside the scope of social security. Job creation among professionals like chartered accountants, lawyers, and doctors is key to generate employment, and needs to be an integral part of our calculations. For example, the transport sector alone has contributed almost 34 lakh (3.4 million) jobs in FY 2017-18, with further 28 lakh (2.8 million) jobs created in the 9 months ending December 31, 2018 as well.

India’s declining employment elasticity is in line with what other major economies have also witnessed

Before I highlight some of the other concerns regarding employment in India, let me defy one of the wrong notions regarding employment elasticity in India. Various empirical studies in India have shown that there has been a continuous decline in employment elasticity from the 1970s to 1980s to 1990s. However, what needs to be highlighted is the fact that India is not the only country where employment elasticity is declining. International Labour Organisation (ILO) estimates suggest that countries in Latin America, East Asia and Middle East also have exhibited visible signs of decline in employment elasticity during 1992 to 2008.

India has a wage problem as opposed to a job creation problem

Now coming to the concerns, let me strongly emphasise on the fact that India does not have a job creation problem, but a wage problem. Low wages especially in the informal economy, do not allow the country’s citizens to lead a comfortable and productive life. Efforts must be directed towards greater job formalisation, including increased social security coverage and better data gathering so that appropriate policies can be made.

The proportion of South India’s elderly population (65 & above) will cross more than 20 per cent by 2050. This will have long term implications on continued inter mobility of labour from East and North East India (as has already been happening for the last one decade) to South India and even Western India and we therefore need state-wise policies for setting up labour intensive industries in young states to stop such large-scale migration and providing ample employment opportunities.

The onset of Industry 4.0 has triggered an extensive digital transformation across leading global industries, particularly in the sectors like IT/ BPM services. Further, as discussed, the elasticity of labour has been going down in the formal sector as expected for a developing economy adopting technology to improve efficiencies. Now this will have serious problem for net job creation in IT based sectors.

The right use of payroll reporting data is capable of providing valuable insights

It is important to note that India does not face a problem of not possessing the data to drive its employment disposition. The right data is lying with the Government and a planned approach of using ‘Payroll Reporting’ can be used to unclutter this data and provide accurate and invaluable insights. The release of payroll data in India has the power to rectify the missing link in policy making as there have been too many conjectures and hypothetical assumptions based on surveys in the public domain regarding the size of employment in India.

Written by:

Dr. Soumya Kanti Ghosh

Member, CII Economic Affairs Council &

Group Chief Economic Adviser, State Bank of India

Source: CII Economy Matters – January 2019 Note: Views are personal and do not necessarily represent views of CII