Despite the monthly payroll data of the Employees’ Provident Fund Organisation (EPFO) indicating rising formal employment in India, it may not be proving that more formal jobs are being created in the country, suggests a recent analysis of EPFO payroll data by stock market research firm Motilal Oswal.

In its latest research report ‘Ecoscope’, economists at the research firm say that since every new EPFO subscriber does not represent new employment, it is very difficult to comment on overall employment generation in the country. Drastic downward revision of the number of gross new subscribers month after month is complicating the matter, the report said.

“One of the biggest limitations of using EPFO-based payroll data is the absence of data on unique existing subscribers (or contributors). Even though after exiting an employee can wait for a long period before filing a settlement claim, the employer stops paying his/her EPFO contribution on termination. Therefore, new subscribers’ data must be analysed in conjunction with the number of unique existing subscribers, if only it is available. In the absence of the number of existing contributors, the monthly payroll data is highly unusable for policy considerations,” the report said.

The report points out that the extent of revisions is very large. It compares the sum of the first readings of all months in FY20 and FY21 with final available readings to show that the downward revisions amounted to 35% and 20%, respectively.

“So far, the net new subscribers in April 2021 have been revised down by 39%, approximately 42% in May 2021, 28% in June 2021, 21% in July 2021, 17% in August 2021, and approximately 9% in September 2021,” the report said.

According to research analysts Nikhil Gupta and Yaswi Agarwal, overall, some form of high-frequency data on formal or total employment in India is a boon. However, extreme revisions and absence of a number of existing contributors to EPFO make it an unreliable indicator for policy considerations.

The report points out that a total of 77 lakh net new subscribers were added in FY21 as against 61 lakh and 79 lakh subscribers in FY19 and FY20, respectively.

“It implies a monthly average addition of 6.4 lakh to EPFO’s subscriber base in FY21, similar to 6.5 lakh in FY20 but higher than the 5.1 lakh in FY19. In contrast, 73 lakh net new subscribers were added in the first seven months of FY22, implying an addition of 10.4 lakh per month. No matter how hard it is to justify this data, EPFO monthly payroll data indicate that the pandemic has given a strong push to formalisation of the labour market,” the report adds

“In any case, there is no doubt that formalisation — in the labor market, payment transactions, etc. — has increased in the country over the past many years,” the report concludes.

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