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What is Social Security?

 any of the measures established by legislation to maintain individual or family

income or to provide income when some or all sources of income are disrupted or
terminated or when exceptionally heavy expenditures have to be incurred (e.g., in
bringing up children or paying for health care)
 social security may provide cash benefits to persons faced with sickness and
disability, unemployment, crop failure, loss of the marital partner, maternity,
responsibility for the care of young children, or retirement from work
 Social security benefits may be provided in cash or kind for medical need,
rehabilitation, domestic help during illness at home, legal aid, or funeral expenses
 It acts as a facilitator – it helps people to plan their own future through insurance
and assistance.

History of Social security

 Germany was the first country to introduce Social security scheme (1883)
 each member of a particular trade (blacksmiths, painters, weavers etc) was required
to contribute at regular intervals;
 Money from this fund was used for food,lodging, hospital and feneral expenses of
aged and disabled members.
 In USA, Social Security Act came into existence in 1935. (years not important, this is
only fodder material for Essay.)

Social Security in India

 India has always had a Joint Family system that took care of the social security
 However with rise of migration, urbanization, nuclear families and demographic
changes, Joint family system has declined. Hence we need a formal system of
social security.

Social Security: Constitutional Provisions

Concurrent List
Social Security and labour welfare falls under Concurrent list, it means both union and
state Government can make laws regarding these topics.

 (List III in the Seventh Schedule of the Constitution of India)

 Item No. 23
o Social Security and insurance,
o employment and unemployment.
 Item No. 24
 Welfare of Labour including conditions of work,
 provident funds,
 employers’ liability,
 workmen’s compensation,
 invalidity and old age pension and maternity benefits.
Part IV Directive Principles of State Policy
Article 41

 Right to work, to education and to public assistance in certain cases

 State shall, within the limits of its economic capacity and development, make
effective provision for securing the right to work, to education and to public
assistance in cases of unemployment, old age, sickness and disablement, and in
other cases of undeserved want.

Article 42

 Provision for just and humane conditions of work and maternity relief
 State shall make provision for securing just and humane conditions of work and for
maternity relief.

Difference between Organized and Unorganized Sectors

Organized sector

 includes primarily those establishments which are covered by the Factories Act,
1948, the Shops and Commercial Establishments Acts of State Governments, the
Industrial Employment Standing Orders Act, 1946 etc.
 This sector already has social security benefits under above laws.
 Examples: employees of union and state Government, army, navy, airforce,
Multinational companies, Infosys, TCS and so on.

Unorganized sector

Examples of Unorganized sector

Rural Areas Urban Areas

1. landless agricultural labourers

1. street vendors
2. small and marginal farmers
2. hawkers
3. share croppers
3. head load workers
4. persons engaged in
4. cobblers
a. animal husbandry
5. tin smiths
b. fishing
6. garment makers
c. horticulture
7. Construction workers
d. bee-keeping
e. toddy tapping
5. forest workers
6. rural artisans

 Unorganized sector doesn’t have labour law coverage. These are seasonal and
temporary nature of occupations.
 Casual nature of work, labour mobility is high hence bargaining power is low.


Employees’ State Insurance Act, 1948 (ESI Act)

 covers factories and establishments with 10 or more employees

 Provides medical care to employees and their families.
 Provides Cash benefits during sickness and maternity
 Monthly pension after death or permanent disability.

Employees’ Provident Funds Act, 1952

 applies to specific scheduled factories and establishments employing 20 or more

employees and ensures terminal benefits to provident fund, superannuation
pension, and family pension in case of death during service.

Workmen’s Compensation Act, 1923 (WC Act)

 Requires payment of compensation to the workman or his family in cases of

employment related injuries resulting in death or disability.

Maternity Benefit Act, 1961 (M.B. Act)

 provides for 12 weeks wages during maternity as well as paid leave in certain other
related contingencies.
Payment of Gratuity Act, 1972 (P.G. Act)

 provides 15 days wages for each year of service to employees who have worked for
five years or more in establishments having a minimum of 10 workers.

Social Security In India : Different From Developed Nations

 We do not have an existing universal social security system

 92% of the workforce is in the informal sector which is largely unrecorded
 today 1/8th of the world’s older people live in India. The overwhelming majority of
these depend on transfers from their children.
 Addressing social security concerns with particular reference to retirement income
for worker
 In India the coverage gap i.e. workers who do not have access to any formal
scheme for old-age income provisioning constitute about 92% of the estimated
workforce of 400 million people.

Provident Fund

 Here the employers to contribute to a provident scheme providing a lump-sum

payment in the event of death or disability or on retirement.

3 disadvantages of Provident Fund

1. Money is inadequate for risks occurring early in working life.

2. Provident funds are generally invested in government securities, which have very
low interest rate (~8%) compared to other investment options such as mutual fund
or even Bank fixed deposits
3. Inflation erodes the real value of savings.

But From the point of view of government, Provident Fund is attractive because it
generates forced savings that can be used to finance national development plans.

Mock Questions for APFC 2012 Exam

Q1 Which of the following statements are correct?

1. Social security falls under the purview of Union Government only.

2. Social security is a fundamental right enshrined in the Constitution of India.
3. Employees State insurance Act applies to any establishment with 5 or more
4. Workman’s Compensation Act requires payment of compensation to the worker or
his family in cases of employment related death only.