India became more formal job friendly with recent ESIC reforms

This revision to contribution rates for the first time in 20 years is important for many reasons. It recognizes that a government corporation has no reason to be accumulating huge amounts of cash confiscated from employees. It recognizes that past contribution rates have been higher than required. It recognizes that in a cost-to-company world of compensation, salary is the property of employees. It recognizes that an unreasonable gap between – salary (gross) and Haath-Waali salary (net salary in hand) breeds informal employment. It recognizes that ESIC treats contributors, not as clients but hostages. It recognizes an appetite to take on vested interests. It recognizes that social security reform is an important component of labor reform. Most importantly, it recognizes that social security schemes must be social and offer security.

This skepticism about ESI is not cynicism about social security; a modern state is a welfare state and spreading India’s prosperity needs a well designed and financed safety net. However, ESI’s accountability for outcomes is weak even for plumbing problems; the portal is down often, hard copy requirements still exist, hospital visit are often required for photos and doctor signatures, a 6 month block instead of 3 months or real-time, challenges in transferring contributions, merger or continuity of numbers between employers, moving away from sub-code wise remittance, disconnect between branch offices and dispensaries, accidents reports could not be filed in portal online during the last three months, address of dispensaries has not yet provided in portal for newly implemented and fully implemented districts, No clear procedure for correction of names and dates of joining, Joint undertaking procedure (like in PF) not implemented, and much else. Additionally, the family pension obligation fits better with EPFO’s mandate and ESI’s decision to run medical and dental colleges must be unwound.

Over the decades ESI has had weak oversight; what else explains the board not considering excessive contribution rates and poor dispensary service as harassing contributors? The only sustainable fixes are competition and governance. Sustaining reform will need governance overhaul; the current board of ESIC is too large (58 members), has too many generalists (no specialized sub-committees), is a geriatric ward (no age limits), has too little turnover among non-government members (no term limits) and has too much turnover among government nominees (poor institutional memory). The board currently does not think strategically about the Institution of ESI (the provision of health insurance) and ESI as an Institution (its human capital, technology, training, performance management, structure). ESIC will only get its act together if it faces competition; we must implement the previous NDA budget announcement that employees can choose who manages their premiums. Maybe we should merge CGHS with ESIC; nothing improves services more than getting rid of VIP rooms, lanes and access. If that is not acceptable, a second best choice may be merging ESIC with Ayushman Bharat; a medical rather than trade union “thought world” is better for contributors. ESI’s dysfunctionality is demonstrated by only enrolling 12 lac of India’s 6.3 core enterprises over 70 years. GST enrolling the same number of enterprises within two years demonstrates that design is a powerful lever.

Dr. B. R. Ambedkar – whose 1943 report laid the foundations for the ESI Act in 1948 – said “A great man is different from an eminent one in that he is ready to be the servant to society”. ESI’s greatness comes from its monopoly rather service to society via capabilities, outcomes, and politeness. This must change. Social security is a vital infrastructure but blindly copying the West without their incomes or recognizing the current problems of their safety nets is delusional. Important design issues for ESI – who pays, who delivers, who governs – need further review because an unintended consequence of the past design is widespread low productivity employment with most Indian enterprises being dwarfs (small that will stay small) rather than babies (small that will grow). With few formal employers, there are few formal employees. Thankfully recent ESI reform indicates a willingness to deal with the labour laws that don’t protect employees and discourage formal employment.