Social security in India
has a semblance of social security legislative framework governing social security, encompassing multiple labour laws and regulations. These laws govern various aspects of social security, particularly focusing on the welfare of the workforce. The primary objective of these measures is to foster sound industrial relations, cultivate a high-quality work environment, ensure legislative compliance, and mitigate risks such as accidents and health concerns. Moreover, social security initiatives aim to safeguard against social risks such as retirement, maternity, healthcare and unemployment while tax-funded social assistance aims to reduce inequalities and poverty. The Directive Principles of State Policy, enshrined in Part IV of the Indian Constitution reflects that India is a welfare state. Article 41 of the Indian Constitution, which is one of the Directive Principles of State Policy states that, The State shall, within the limits of its economic capacity and development, make effective provision for securing the right to work, to education and to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want. Food security to all Indians are guaranteed under the National Food Security Act, 2013 where the government provides highly subsidised food grains or a food security allowance to economically vulnerable people. The system has since been universalised with the passing of The Code on Social Security, 2020. These cover most of the Indian population with social protection in various situations in their lives.
Overview
The Government's social security and welfare expenditures are a substantial portion of the official budget and as well as the budgets of social security bodies, and state and local governments play roles in developing and implementing social security policies. Additional welfare measure systems are also uniquely operated by various state governments. Aadhaar is utilised to distribute welfare measures in India.The comprehensive social protection system of India can be categorised as the follows: social assistance and mandatory social security contributory schemes mostly related to employment. The Code on Social Security, 2020 is part of the Indian labour code that deals with employees' social security and have provisions on retirement pension and provident fund, healthcare insurance and medical benefits, sick pay and leaves, unemployment benefits and paid parental leaves.
The largest social security programs backed by The Code on Social Security are:
- The Employees' Provident Fund Organisation as a mandatory defined contribution retirement plan for private sector employees. It also provides for basic life and disability insurance.
- A maternity leave benefit of 6 months alongside a one time medical bonus of Rs 3000. A further crèche allowance is to be provided by the company until the 1st year of the child.
- The Employees' State Insurance for healthcare and unemployment benefits along with sick pays and maternity benefits.
- The Unified Pension Scheme as the mandatory Pay-as-you-go pension plan for civil servants.
- The National Pension System which is increasingly gaining popularity as a voluntary option. These are funded through social insurance contributions on the payroll.
- The National Food Security Act, 2013, that assures food security to all Indians, is funded through the general taxation.
Budget
National level social security bodies and programs
This section covers some of the social programs and welfare measures in place in India at the federal level. These can be categorized into two: 1) Social security, which mostly run through mandatory or voluntary contributions on the payroll and 2) Social assistance, which is funded through taxes. These programs' funding can be categorised as: non-contributory and tax-payer-funded, employer-funded and lastly, joint-funded.Social Security
These are retirement, healthcare, disability, childcare, gratuity and provident fund and insurance programs mostly governed by The Code on Social Security, 2020, most of which are mandatory for all Indian and foreign employees' working in India.Unified Pension System for Civil Servants
The unified pension system is a pension system for civil servants in India, that replaces the defined-benefit, unfunded, Old Pension Scheme. In the unified pension system, a civil servant contributes 10% of their salary while the government contributes 18% each month on their behalf. After retirement, the civil servant receives 50% of their basic pay of the average of the last 12 months preceding retirement. The pension is indexed to inflation and increases every years.Public Provident Fund
The Public Provident Fund is a voluntary savings-tax-reduction social security instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968. The scheme's main objective is to mobilize small savings for social security during uncertain times by offering an investment with reasonable returns combined with income tax benefits. The scheme is offered by the Central Government. Balance in the PPF account is not subject to attachment under any order or decree of court under the Government Savings Banks Act, 1873.The 2019 Public Provident Fund Scheme, introduced by the Government on 12 December 2019, resulted in the rescinding of the earlier 1968 Public Provident Fund Scheme. The minimum yearly contribution is Rs 500 and the yearly returns is guaranteed at 7.1%. One can withdraw the entire amount after 15 years or partially before anytime in case of social causes such as unemployment.
National Pension System
This is thought to eventually become the national pension system of India which initially started to replace the civil servant's pension system. Civil Servants who joined service before 2004 are entitled to the Civil Service Pension Scheme and the General Provident Fund. These were established in 1972 and 1981 respectively. It was a defined benefit system that the employees did not contribute to and the pension was funded through the general state budget. To qualify for a pension, one must have been in service for at least ten years and the pensionable age was 58. The retired employee received 50% of his/her last salary as the monthly pension. Due to the severe financial burden that this system was placing on government finances that it was abolished for new civil service employees from the year 2004 and replaced by the National Pension System.The National Pension System is a defined contribution pension system administered and regulated by the Pension Fund Regulatory and Development Authority, created by an Act of the Parliament of India. The NPS started with the decision of the Government of India to stop defined benefit pensions Old Pension Scheme for all its employees who joined after 1 January 2004.
The employee contributes 10% of his gross salary to the system while the employer contributes a matching amount. At the official age of retirement, the employee can withdraw 60% of the amount as a lump sum while 40% needs to be compulsorily used to buy annuity that will be used to pay a monthly pension. The system tries to achieve a target of 50% of the last salary of the employee. This system has been made compulsory for all civil servants but voluntary for others. In the General Provident Fund Scheme, the employee needs to contribute at least 6% of his gross salary and there is a guaranteed return of 8%. The employee can withdraw the lump sum amount when he/she retires.
Employees' Provident Fund Organisation
It is the most important social security body that covers most employees in India and accords them with social protection and is governed by The Code on Social Security, 2020. It runs three social security schemes for workers and employees in India. A provident fund is a kind of retirement scheme. It is mandatory for every private and self-employee under The Employees' Provident Funds and Miscellaneous Provisions Act, 1952.Under this statutory act, an employee contributes 12% of his or her monthly salary and his or her employer contributes a matching amount, while the government contributes 1% of the employees’ salary, with a total contribution of 25% of the employee's gross salary. The contributions go towards three social security schemes: the mandatory provident fund, a pension scheme and a disability and life insurance. The entire 12% contribution of the employee goes towards the Employees’ Provident Fund Scheme, while from the employer's share of 12%, 3.67% goes to the Employees’ Provident Fund and 8.33% goes towards the Employees’ Pension Scheme along with 1% contribution of the government while 0.5% contribution of the employer goes to the Employees’ Deposit-Linked Insurance.
Employees affiliated to this body are also covered automatically by the National Health Protection Scheme health insurance. The employee withdraws the amount deposited for the provident fund along with the interest accumulated once the employee reaches the statutory retirement age. In case of death or disability during work, the dependent or the disabled employee gets a monthly pension throughout their life. The pension schemes guarantees a basic minimum pension for the employees life after retirement. Retirement age currently stands at 60 in all establishments covered by the EPFO. Overall, the system tries achieving 50% of the employee's last salary.