December 3, 2019 Sujeev Shakya

The government’s year-old social security scheme is a mess

Arbitrary actions, confusing policies and opaque management will throttle investments and economic growth.

Last year, the KP Oli-led government undertook a multi-million rupee media blitz throughout the country to launch its contribution-based social security scheme. The scheme and its accompanying Social Security Fund were launched with the slogan ‘Naya Yug Ko Suruwat’, which translates to ‘the beginning of a new era’. The International Labour Organisation (ILO) lauded the move on its website, considering the scheme ‘one of the milestones of the ILO’s on-going interventions in Nepal’. A year has passed and on November 30, the deadline for organisations to register with Social Security Fund ended. Till the cut-off date, 10,477 enterprises and 115,606 individuals had registered, a dismal number compared to the number of enterprises and people working in Nepal. Investors, foreign and domestic alike, are waiting to see how the scheme moves forward, given the weak reception. Consultants have been bombarded with questions; there is uncertainty on policy directives moving. Real estate prices are taking a hit and the stock market will not recover any time soon due to the confusing policies. As it is, the Indian economic slowdown has been impacting business and tourism in Nepal already.

Nepal has a history of making a mockery of every good intent. The opacity of the Prime Minister’s Disaster Relief Fund showed how the management, systems and processes of government funds lack transparency. When the Bonus Act led to banks paying out large bonuses, the government mandated that the excess amount must be deposited to a National Level Welfare Fund whose scope of activity is unknown. Therefore, the government does not have the credibility to be able to win the confidence of employers and employees that it will not siphon off money from the Social Security Fund.

Twentieth-century mindset

The basic idea of the social security scheme is that an employee will put in 11 percent of their gross salary into this fund, and their employer will contribute an additional 20 percent. This savings is locked-in until the person turns 60, after which they will be eligible for pensions. The government has already made it impossible for organisations to legally hire interns and fellows. They have also done away with probation periods, which means that an employee is eligible for all benefits from day one and there are no linkages between wages and productivity. In an age where people are known to hold partake in multiple income-generating activities simultaneously, the shift from a focus on careers and jobs to income is clear.

Any social security scheme should be able to explain how healthcare expenses will be defrayed through such a large contribution to a fund and how the pension scheme will work. In Japan, there is a strong push for doing away with the concept of retirement. In Nepal, there is no clear understanding of what the government is trying to do. The employees and employers have for years been contributing to the Employee Provident Fund (EPF) and Citizen Investment Trust (CIT)—both are government bodies mandated by acts of Parliament. Now, it is unclear what will happen to these funds. There are rumours swirling about how the government is planning to dissolve the EPF and the CIT and transfer the accounts to the new Social Security Fund. Many people, therefore, are attempting to withdraw their money from the two old funds owing to the uncertainty that jeopardises their savings.

In Nepal, the employer-employee discourse has been monopolised by the cartels and political unions, who negotiate with the government on acts, laws, regulations and policies. Those who speak against them are either silenced through smear campaigns in media or verbal/physical threats. The contribution-based social security scheme was a result of the negotiation reached between employee unions (that this government has to keep happy) and the employer council of cartels, facilitated by experts from concerned international organisations. I remember how, during my days working at Soaltee Hotel, heavyweight pseudo-militant union leaders from different parties would come to negotiate on behalf of the employees, who were working diligently. The irony here is that some members of the business houses making up these cartels have been boasting openly about how they hire Indian workers in their factories to circumvent labour laws and social security schemes aimed at Nepali workers.

Nepal may regress

Business ventures are fluid, they will always find a way to work as long as the product or service has enough demand. But recently, through better access to finance and easier way to pay taxes, businesses had started to move away from the informal sector to formal ones. The recent confusion threatens this progress; businesses will be tempted to embrace the informal sector again. This is detrimental to Nepal’s growth. In Unleashing Nepal, I advocated for Nepal being a capitalist welfare state, where free enterprises will be responsible for welfare payments along with the state. The private sector has to see it as something that they are encouraged to do for it to work.

Nepal’s growth prospects are dependent on attracting investments—both domestic and foreign. The government needs to reach out beyond their political base, of cartels that fund them and the unions that give them muscle and electoral power, to examine how to make social security a reality for Nepalis in a manner that is credible, gradual and acceptable.

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