Fact check: Does a rise in EPF accounts, GST collection indicate job creation, as the Centre claims?

The Union Ministry of Labour and Employment on April 26 issued a statement countering media reports on how millions of Indians were dropping out of the labour force. The ministry, in its clarification, said the labour force and work force had increased steadily from 2017-18 to 2019-20.

“Making an inference by some section of media that half of the working age population has lost hope for work is factually incorrect,” read the ministry’s statement. This was to rebut news articles on the Centre for Monitoring Indian Economy report released in April on how India’s labour participation rate, or LPR, had fallen to 39.5% in March 2022 from 39.9% in February 2022.

Although the central ministry used official data of the Periodic Labour Force Survey, or PLFS, to corroborate its claims, it relied on data from the pre-pandemic financial years, even though the surveys are released every quarter. The latest available survey is from July-September 2021, whereas the data in the labour ministry’s statement covers only the period between 2017-18 and 2019-20.

In fact, the country’s unemployment rate rose in April 2022 to 7.83% from 7.6% in March, showed the latest data from the Centre for Monitoring Indian Economy. While the urban unemployment rate increased to 9.22% in April from 8.28% the previous month, the rural unemployment rate dipped to 7.18% from 7.29%.

Apart from using old data to counter a latest report, the Centre also claimed that the new net addition of Employee Provident Fund Organisation, or EPFO, subscribers, increased Goods and Service Tax collection, and rising exports signify job creation and positive trends in employment generation.

“The net addition in EPFO subscriptions is an indicator of the extent of job creation/ formalisation of the job market, and the coverage of social security benefits to the organised/ semi-organised sector workforce,” claimed the ministry.

“The other indicators of the economic activities such as all-time high gross GST collection in the month of March 2022 and all-time high India’s overall export during financial year 2021-22 are also supportive of positive trend in employment generation in the country,” it added.

FactChecker analysed if these factors have a connection with growth in employment.

‘GST a product of consumption’

An analysis of Goods and Service Tax collections and employment trends over eight quarters during 2019-20 and 2020-21 revealed that there is no direct correlation between the two. In July-September 2019, the total Goods and Service Tax collection came down from the previous quarter – from Rs 3.14 lakh crore to Rs 2.92 lakh crore.

In the same period, the unemployment rate also decreased to 8.3% from 8.8% in the previous quarter. This shows that more people were employed from the labour force even when the Goods and Service Tax collection decreased.

Goods and Service Tax collection went up by Rs 11,715 lakh crore in January-March 2020 from October-December 2019. In the same period, the unemployment rate went up by 1.3% from the previous quarter.

It can be inferred that even when the amount collected from Goods and Service Tax was higher, job creation and employment were not doing so well.

Madan Sabnavis, Chief Economist of Bank of Baroda, told FactChecker, “GST collection is a product of consumption, and cannot be confidently linked to job generation.”

In fact, in October-December 2020, when the Goods and Service Tax collections for the quarter were at an all-time high compared to all previous quarters (Rs 3.25 lakh crore), the unemployment rate according to the quarterly Periodic Labour Force Survey was also at a high of 10.3%.

“GST indicates the overall well-being of the economy. But indicators which show the state of affairs in the formal sector such as GST collection and EPFO have no direct link with employment growth,” said PC Mohanan, former member and working chairman of the National Statistical Commission.

While it might seem intuitive to link increased export values, and therefore increased manufacturing power to a rise in employment, academic research has not established a correlation between the two. Mohanan told FactChecker that exports and international trade depend on a variety of factors, and hence are prone to fluctuations. This does not necessarily reflect a positive trend of job creation.

According to the Reserve Bank of India, the overall exports for 2021-22 was at the highest ever of $418 billion. Even then, the worker population ratio in the first two quarters of 2021-22 continued to be nearly 10% less than its last pre-pandemic values.

Little change in EPFO figures

The Employee Provident Fund is a social security scheme under the labour ministry for the organised sector that enables employees to save a part of their earnings for retirement. While Employee Provident Fund numbers can be used to determine the extent of formalisation of the economy, extrapolating that data to link it with employment creation can be misleading.

One of the reasons is the re-subscription and merging of Employee Provident Fund accounts. The portability of provident fund accounts is not high due to which people end up opening a fresh provident fund account when they change jobs. Also, having an Employee Provident Fund account does not necessarily mean that the account holder is currently employed.

Mohanan pointed out that according to the statutory guidelines of the Labour Ministry, all organisations with 20 employees or more are required to register their employees in the Employee Provident Fund scheme.

“So, if a unit enrols its 20th person, it does not mean that 20 new jobs have come. It is only an increment of one job, but because the unit crosses the threshold all of the remaining 19 people also get enrolled into the scheme,” he said.

FactChecker analysed the payroll data of the Employee Provident Fund Organisation for four financial years up to 2020-21. In 2019-20 and 2020-21, the number of net new Employee Provident Fund subscribers is nearly the same.

Even then, there is a stark difference between the unemployment rates for both years. Marginally fewer people were able to find jobs in 2020-21 even when the addition to Employee Provident Fund subscribers remained near-consistent.

According to a response to a question in Lok Sabha in September 2020, out of the 47.13 crore employed in India, only 9.05 crore were engaged in the formal or organised sector. The remaining 38.07 crore, or nearly 81% of the employment, is in the informal sector.

“We don’t know how many people from the informal economy are moving into the formal,” Sabnavis told FactChecker. So, an increase in Employee Provident Fund Organisation numbers may be a sign of the formalisation of the economy but not a definite sign of addition to the country’s employment pool, he concluded.

FactChecker tried calling Kalpana Rajsinghot, joint secretary in the media cell at the Ministry of Labour and Employment, but got no response. FactChecker has also emailed Union Minister Bhupendra Yadav and his secretary Amar Singh asking for clarification on the statement. If and when there is a response, the story will be updated here.

This article first appeared on FactChecker.in, a publication of the data-driven and public-interest journalism non-profit IndiaSpend.