Topic 01: Social

Security
(Part 02inofIndia
05)
By Omkar J Bapat
Financing of Social
security schemes
Financing of Social Security
Schemes
 Financing of Social security schemes
There is a broad consensus among social policy experts, planners
and administrators that every member of the society should have
a minimum level of social protection.

The fundamental aim of social security is to give individuals and

families the confidence that their level of living and quality of
life will not, in so far as possible, be greatly eroded by any social
or economic eventuality.

On paper, Social Security promises to deliver great benefits to a

great amount of people, however the transition of this vision into
reality is dependent on the willingness and the ability of the State
and the people to make it happen into reality.
 Financing of Social security schemes
Being that the provisions relating to social security conceptualize
promotional as well as protection measures, which will
respectively take care of deficiency and adversity, the difficulty of
financing the benefits is indeed an important one.

The provisions refer to on one hand, to the problem of deficiency

of those who are not in a position to access minimum resources
to meet their economic and social requirements for a dignified
life in a society and on the other hand, they refer to the social
arrangements in wide ranging contingencies arise out of human
life and work, such as ill-health, injuries and accidents,
unemployment, maternity, old age, death of an earning member and
so on.
 Financing of Social security schemes
It is important to remember that Social Security is 'not free' as
there is a cost to be borne by the State and the people for
financing various social security schemes so that the basic
concepts of human dignity and social justice is provided to the
citizens in a guaranteed way.

The underlying idea suggests that social security measures would

be allowed to a citizen who has contributed or is likely to
contribute to his country's welfare and he should be given
protection against certain hazards.

Social security benefits may be either social insurance benefits

(earned benefits) or social assistance benefits (need-based
 Financing of Social security schemes
Insurance based social security schemes are dependent on revenue
willingly provided from wages by employers and employees to
earn entitlement to individual and family, benefits in adversity,
including unemployment, sickness, disability, bereavement and
retirement benefits.

Social assistance benefits are provided to helpless persons by

the State through tax revenues and these schemes will be crucial
for some groups who are unable to work, such as children, the
severely disabled and the elderly.

Social assistance schemes are indispensable in ensuring social

security as it is unlikely that every person can be adequately
 Financing of Social security schemes
Social security is a world-wide phenomenon, which is not restricted
to developed countries. Today, state based social security in form
of social security programs exists in 172 countries.

However, it is estimated that more than two billion people in the

world are not covered by any type of social security protection,
i.e. neither by a contribution-based social insurance scheme nor by
tax financed social assistance.

While social security provided by the state or state initiated

organizations covers most of the labor force in the organized
sectors of the public and industrial employment, the vast majority
of the unorganised rural population and people in the informal
 Financing of Social security schemes
The introduction of social security programmes in developing
countries like India is a difficult task as capital markets are under
developed, budget restrictions are high and are usually
characterized by traditional labor structures and large levels of
poverty, which would require social security programmes to achieve
a big target that few Governments in developing countries are able
or willing to implement.

In addition, Governments in these countries have, in general, less

capacity to collect taxes, implement complex programmes of
social protection. Further, political pressure against the
implementation social security policies is also often high in
developing countries because such policies may imply large
Who bears the cost of Social
Security in India?
 India
Who bears the burden for financing of Social Security in India?

The Constitution of India has stated that India is a welfare

state. Therefore, the State has the responsibility for the provision of
the very basic minimum ways and means for the survival of its
citizens.

The State bears the responsibility for providing and ensuring an

elementary or basic level of security in Majority, and leave room
for partly or wholly contributory schemes by citizens, AOPs, BOIs
and other Corporate persons.

This will mean that the responsibility to provide a floor level social
 India
Such a system would minimize the responsibility of the State, and
maximize the role and share of paying capacities of the employee
and the employer.

Where there is no employer who can be identified, as in the case

of the self-employed, or those whose income is too low to permit
them to make adequate contributions, the State will substitute
the employer or the employees as the case may be, and assume
the responsibility to supplement the contributions of the beneficiary
workers.

In India, there are several legislations that provide social security

benefits covering health care, disability and old age income security
 India
In the initial years of development planning, it was believed that
with the process of development, more and more workers would
join the organized sector and eventually get covered by formal
social security arrangements.

However, experience has revealed that there is much to be done

for the workers in the unorganized sector in order to enable them
to be benefited by the protective shield of social security like in the
organized sector.

The Laws in India as enshrined in the Constitution of India, gives

the citizens the Right to seek Constitutional Remedies under Article
32 if they feel that their rights are being violated. Since that ‘right
 India
The Supreme Court has observed in the Consumer Education &
Research v. Union of India Case that the expression 'life' assured
in Article 21 does not connote mere animal existence or continued
drudgery through life and has a much wider meaning which
includes right to livelihood, better standard of living, hygienic
conditions in the workplace and leisure facilities and
opportunities to eliminate sickness and physical disability of the
workmen.

Further observations were made in the C.E.S.C. Ltd. v. Subhash

Chandra Bose Case, where it was held by the Supreme Court that
the right to social justice is a fundamental right.
 India
Similar observations about the role of social security in ensuring a
complete and meaningful existence of life were made by the
Supreme Court in the Air India Statutory Corporation v. United
Labour Union Case and the Murlidhar Dayandeo Kesekar v.
Vishwanath Pandu Barde Case.

The gist of the observations made in these two cases stated that the
‘Right to livelihood’ is a fundamental part of the Right to Life
guaranteed under Article 21 and can also be interpreted as the
Right to Employment as the health and strength of a worker is an
integral facet of right to life.

Right to human dignity, development of personality, social

 India
Another important aspect of the observations made by the Supreme
Court have revealed that the right to economic empowerment is
also covered within the meaning of the Right to Life under
Article 21 so that the poor, the disadvantaged and the oppressed
people are given the right and the aid to uplift themselves from their
deplorable conditions so that they too may live a meaningful and
dignified life worth living.

In conclusion, the State cannot wash its hands off from bearing
the cost of Social Security as it is its Sovereign Responsibility
towards its citizens in ensuring that they are able to enjoy, at least
the bare minimum of what constitutes as life.
FUNDING OF SOCIAL
SECURITY
IN INDIA
in India
The framework regarding financing of Social Security in India
is of four types namely –

(i) Fund created from the contributions of the employer and the
employee;

(ii) Fund created by the contributions from the employer, the

employee; and the State

(iii) Exclusive funding from the employer

(iv) Exclusive funding from the State

in India
The first kind of social security funding mechanism framework
envisions the provision of benefits from the funds constituted by
means of contribution from both the employee and the
employer. The employee’s contribution towards social insurance
fund is universal feature.

This way a part of total cost of the social insurance is collected from
the beneficiaries. The employee’s contribution helps in collecting
enough funds which in turn help in providing sufficient benefits to
them. This also helps beneficiaries a basis for the right to claim the
benefits.

Contribution to the social insurance scheme gives the members of

in India
Employees’ contribution is one of the chief characteristics to
distinguish social insurance from social assistance. Contributions
save the benefits from the stigma of charity or poor relief this is
why “the insured persons cam pay and like to pay and would pay
rather than not to do so.”

The Employees’ State Insurance Act, 1948, the Employees’

Provident Funds and Miscellaneous Provisions Act, 1952, are
identified under this type of funding mechanism.
in India
The second kind of social security funding mechanism involves
the participation of the employee, employer and the State in
creating the Fund for the purpose of providing benefits.

The tripartite contribution principle ensures the availability of

adequate funds for stipulated benefits. Employer’s contribution
represents the responsibility of industry towards its workers.

Similarly workers contributions represent their responsibility

towards themselves and their dependents, while States’ subsidy
represents the responsibility of the welfare State towards its
citizens.
in India
In this context the sector specific social security legislations enacted
by the Central Government as well as the State Governments are
identifiable. These legislations provide more or less a system
wherein the contribution of the employee is levied from monthly
wages towards the Fund created there under.

As far as the employer’s contribution is concerned it is based on a

method which is quantifiable in relation to the process of
production related issue of by way of cess.

The collection of contribution from the employer under the State

Government enacted legislations is slightly different, with a few
states levying contribution on a monthly basis while the others levy
in India
The third kind of social security funding mechanism is
Employers’ Liability Schemes wherein liability is met
exclusively by the employer from his own sources. Some
employers have insured their liability but most meet the costs
themselves.

The Payment of Gratuity Act, 1972, the Employees’ Compensation

Act, 1923 and the Maternity Benefit Act, 1961 provide social
security benefits under employers’ liability schemes.
in India
In the fourth kind, of social security funding mechanism the State
undertakes the entire burden of funding of social security
benefits. However in India, there is no specific legislation which
provides for exclusive funding by the State for administering the
social security benefits to the workers. This type of commitment is
evident in non statutory social security schemes promulgated by the
Central Government from time to time as a popular measure.

These schemes are target oriented in contrast to universal

application. The Central Government has brought these schemes to
provide maternity benefits, food and nutrition, housing, health,
education, employment security and old age pension benefits etc to
the poor section of the society targeting mainly those who come
in India
Important among them is National Social Assistance Programme
which has five main components namely -

Indira Gandhi National Old Age Pension Scheme (IGNOAPS),

Indira Gandhi National Widow Pension Scheme (IGNWPS),

Indira Gandhi National Disability Pension Scheme (IGNDPS),

National Family Benefit Scheme NFBS)

Annapurna Scheme
 26

That’s all
folks!