EPFO data shows employment dip

In December 2022, the Em­ployees’ Provident Fund Or­g­anisation (EPFO) released its annual report for 2021-22. According to this, 46.34 million members contributed to the EPFO during 2021-22. This was 0.06 million higher than the 46.28 million contribu­ting me­m­bers in 2020-21. The la­tter est­imate is sourced from the prev­ious year’s EPFO annual report.

The 46.34 million contribu­ting members in 2021-22 is much lower than the 48.92 mill­ion contributing members seen in the pre-pandemic year of 2019-20. Evidently, formal sect­or employment measured thro­ugh EPFO contributions had not recovered to its pre-pandemic levels till at least 2021-22. It had declined by 5.3 per cent.

The EPFO annual reports also reveal that the contributing establishments have declined from 660,204 in 2019-20 to 591,184 in 2021-22. The number of contributing establishments has shrunk by a massive 10.5 per cent during these two years. The scars of the pandemic on employment have endured all claims of a V-shaped recovery as is evidenced even in the most touted official data.

This finding, however, is at odds with the regular monthly flow of EPFO data. We hope to explain this mystery in the following paragraphs.

The regular publication of EPFO “payrolls” data is a relati­v­ely new initiative of the gove­r­nment. It began in early 2018. It provides data from September 2017. The objective of this initia­tive is to measure employment in the formal sector. This “payroll” data is, in fact, the net ad­dition of EPFO subscribers in a month. This is the gross addi­t­ions less exits but including re-subscription of exited members every month. The EPFO is, in fact, a savings scheme applicab­le to a section of salaried emp­lo­­yees and not a (non-farms) payroll database as is usually un­derstood in other countries where the term is used to measure employment. But that is a different problem.

This monthly data release suggests that net addition to EPFO subscriptions grew by 7.7 million in 2020-21 and by anot­her 12.2 million in 2021-22. This implies a 20 million net in­cre­ase in EPFO subscribers. This is dramatically different from the annual reports placed in Par­lia­ment that suggest a fall of 2.6 million in the same period.

The monthly data released by EPFO are always provisional, and are released with a lag of less than two months. The latest release is dated December 20, 2022, and the latest data it provides is the provisional estimate for October 2022.

The first release of the data undergoes revisions in subseq­uent releases for a maximum of 12 months. Or, it may not be rev­ised at all. Whether an initial es­t­imate will be revised or not or how often it will be revised dep­e­nds on the month. We will re­turn to this in a bit. First, let’s examine the revisions.

The revisions are substantial. We examine revisions to the estimates of April 2021. The first estimate of net addition to EPFO subscribers in April 2021 was 12,75,729. This estimate was released in June 2021. It was revised downwards in each subsequent release till the release dated May 2022. By then, the April 2021 estimate fell by a massive 45 per cent to 698,876.

Similarly, the first estimate for May 2021 released in July 2021, which was 919,772, dropp­ed to 441,760 by May 2022. This was a 52 per cent downward revision in 11 months.

The revisions seem to be systematically and substantially downward. Ergo, reading the initial releases of the EPFO can be significantly misleading.

The twist in these revisions is that they are available for a month till all the monthly data for its financial year are relea­s­ed. So, the first release of April sees 11 revisions in as many subsequent months, May sees 10 re­visions, June sees 9, and so on till the March release, which never sees a revision. This is strange, and an unsatisfactory position because it produces a monthly time series of net EPFO subscriptions that has da­ta of varying levels of reliability. Given that the revisions are very substantive and the revisi­ons are incomplete, the time se­ries is rendered almost useless for any analysis or to draw any me­a­ningful inference of the trend.

When the March data are released, the EPFO releases the annual estimate for the year ended in that March. These an­nual estimates are never revi­s­ed. This implies there were no revisions to the data once the last month of the data is relea­sed. But, this is implausible. If monthly estimates of April and May can be revised to less than half their original values, then March estimates may also be getting revised in subsequent months. But, the EPFO monthly releases do not oblige with these revisions.

The presentations also raise a doubt whether the April 2021 estimate that was last revised in May 2022 was the final estimate or were there more revisions that were never released.

So, what has the new initiat­ive, that was much hyped when it was first released, achieved? Its first estimates are unreliable by a huge margin as the reality could easily be half of the estim­ate. Its time series is meaningless because it contains different levels of substantial re­vi­sions. Its annual estimates are frozen and never revised when it seems these should be revised.

As a result, the monthly EPFO data releases have only misled. The good old EPFO an­n­ual report tabled in Parlia­m­ent with a lag of about 9 months is still the best provider of this data. And, it suggests that emp­loyment fell in the formal sector during 2020-21 and stagnated in 2021-22.

 
The writer is MD & CEO, CMIE P Ltd