ESI rate cut: Indian textile industry will save Rs. 2,160 crore annually

by Dheeraj Tagra

14-June-2019  |  4 mins read


Textile industryIn a decision, which is a relief for the industry, the Government reduced the rate of contribution under the Employees’ State Insurance Act (ESI Act) to 40 per cent from 6.5 per cent. The employers’ contribution to the ESI Act has now been reduced to 3.25 per cent from 4.75 per cent and the employees’ contribution has been reduced to 0.75 per cent from 1.75 per cent.

ESI Act provides medical, cash, maternity, disability and dependent benefits to the insured persons (applicable only to organisations with 10 or more workers and to workers drawing a salary up to Rs 21,000 per month). Notably, this is the first reduction in 22 years and will be effective from 1 July.

As Indian textile industry employs at least 4 million (4 crore) people, experts feel that around 30 per cent of this workforce is under pay roll and avails of the ESI facility; therefore by saving Rs. 150 per worker every month, the industry will be able to save Rs. 180 crore per month and Rs. 2,160 crore per year. This calculation of Apparel Resources has been endorsed by the industry experts. It is imperative to note here that as per official data, there are 36 million employees and 1.28 million employers under ESI.

With this decision, a small factory having 100 workers under ESI, will save at least Rs. 1,80,000 per annum while every worker will be saving at least Rs. 1,200 per year (on the basis of an average salary of Rs. 10,000 per month). Some of the factories having good orders and paying higher minimum wage, will save more. “We have 4,000 workers and will be saving at least Rs. 1 crore per year as we are paying overtime too,” shared a CFO of Delhi-NCR based export house, working with many global brands.

“We welcome this decision as our trade is struggling and every support, big or little, really matters. I feel that even now the rate of ESI is higher and it should come down further as health is a very important issue. If this rate come down, it will definitely increase the ease of doing business. Apart from that, the Government should support on Provident Fund issue, specially where the minimum wage is higher than Rs. 15,000 per month,” Anil Verma, President, Delhi Exporters Association (DEA).

The industry experts, however, do not agree with the government’s take that this step will increase compliance and the ease of doing business, as whoever follows compliance, will not be concerned about the amount that they would have to pay under rules.

“Definitely it is a good and much awaited move, it will increase ease of doing business and will help the overall economy. We are thankful to the government for this and expect more such steps,” Prabhu Damodaran, Convenor, Indian Texpreneurs Federation (ITF), Coimbatore.

Industry experts are also of the opinion that this step shows that the government is finding a way out to support the overall industries and economy. Irrespective of limitations or complications with regard to WTO conditions or long-pending FTAs with core markets, Government is thinking of the industry.

“This positive step is like out of the blue and will prove to be of a big help. Now industry should also come forward and invest. Looking at the overall state subsidies and Government support… overall textile and apparel industry is not as much enthusiastic for expansion,” says Prashant Agarwal, Joint Managing Director, Wazir Advisors, Gurgaon.  

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