Social Security: Prospects & Challenges

Uttam Maharjan

The government unveiled the social security scheme on November 27. It is the first of its kind in Nepal. In fact, the Social Security Act was enacted last year but the regulations and work procedures were formulated this year. The social security scheme is a contribution-based scheme. Under the scheme, employees are required to contribute eleven per cent of their basic salary every month and their employers will contribute twenty per cent, thus making the total contribution of thirty-one per cent. Such contributions will be collected from May 22, 2019.

Fund operation
The social security fund was established way back in March 2011 but for lack of the relevant Act and Regulations, it could not be operated then. It has, however, a deposit of around Rs. 19.33 billion mobilised by levying social security tax. The funds deducted from employees’ salary and contributions by the employers will be deposited to this fund. Besides, deposits in provident funds and citizen investment funds will also be transferred to this fund once it comes into operation.
There scheme covers all employees working in the organised sector. As per the Central Bureau of Statistics, there are 922,000 entities, including industries, employing 3.408 million people. It is estimated that an amount of Rs. 2.5 billion will be deposited to the fund every month, making it the biggest fund in ten years. For now, the scheme will not, however, cover employees working in the informal sector. There are no precise data on such people but the number of such people must be large. Such people will also be brought into the ambit of the scheme in due course. How such people will be categorised to make them part of the scheme will be a daunting task. The government should, therefore, make preparations right from today in this direction.
The benefits are galore under the scheme. Employees are entitled to compensation if they lose their jobs, or cannot go to the office for reasons like pregnancy, illness or accidents. The scheme covers medical treatment, health and maternity security; accident and disability security; dependent family security; and old age security. The old age security segment carries the lion’s share of the fund at 91.39 per cent, whereas the first, second and third segments carry 3.22 per cent, 4.52 per cent and 0.87 per cent respectively. In case the fund turns out to be inadequate for compensation, the government will make required deposits to the fund through a budget announcement.
The scheme aims at enhancing the welfare and security of employees. Employees and labour unions had been demanding the implementation of the scheme for a long time. They were dissatisfied with lack of adequate compensation and with their precarious future. There were instances of employee-employer conflict as well in the past, leading to a falling-off in productivity. It is expected that with the implementation of the scheme, the degree and frequency of employee-employer conflict will come down and employees will work harder and more diligently, thus improving employee-employer relations and enhancing productivity, which will have a positive impact on the overall economy.
There are, however, many challenges to face while implementing the scheme. The most challenging aspect seems to be the management of the fund. With an accretion of Rs. 2.5 billion to the fund every month, which will go up with time, the fund will be very large. It already has Rs. 19.33 billion, which has remained unutilised as yet. So the sustainability of the fund will hinge on its sound management. The fund needs to be invested in the commercially viable sector so that it will churn out handsome returns. This will enable the fund to pay out compensation to employees in adequate fashion. On the other hand, investments of the fund will also solve the liquidity crisis seen in the banking sector to some extent. The banking sector has been reeling under a liquidity/credit crisis for months due partly to the underspending of the government budget.
The scheme is a welfare programme. The inception of the welfare programme in Nepal can be traced back to 1995, when the senior citizen welfare programme was launched. This programme has been continuing till now. However, the programme is not contribution-based.
Despite the good aspects the scheme covers, the government came in for a lot of brickbats, including on social media, for the way the scheme was launched. The government has revealed that it spent Rs. 6.8 million in its publicity, including jacket advertisements in the newspapers and posters. In fact, the government need not publicise the scheme in such an ostentatious manner. The main opposition party, the Nepali Congress, has said that the Social Security Act was enacted during the premiership of NC leader Sher Bahadur Deuba but for lack of the relevant regulations and work procedures the scheme could not be implemented then.
It is immaterial which government brings out programmes, welfare or development or otherwise. What is imperative is there should be programmes aimed at uplifting the standard of living of people. Now, the focus should be on the implementation of the scheme with sound management of the fund. The Nepali Congress has said that it will support the implementation of the scheme. In fact, employees, employers and the government should act synergetically to implement the scheme successfully. The success of the scheme will depend much on the integrity of employers. The government will act as facilitator.

Proactive role
If the scheme is successful, there will be a sea change in the labour market, making it dynamic besides creating an investment-friendly environment and giving a shot-in-the-arm to the overall economy. On the other hand, failure of the scheme may invite economic pandemonium. Hence, employees, employers and the government should all play a proactive role in making the scheme a success so that it can be expanded further in the years ahead.

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