In a just concluded meeting of the Trade Policy Forum [TPF] attended by commerce minister, Nirmala Sitharaman from India and US Trade Representative [USTR], Michael Froman, US has emphatically rejected India’s request for signing a Social Security Agreement [SSA] – nick named totalisation pact.
The possibility of signing the Agreement – pending for long – had got a boost early this year when prime minister, Modi raised the issue with President Obama during his January, 2015 visit to India. As a follow up, in August a ‘negotiating forum’ was set up to discuss a possible SSA between India and US. Though the forum is still active, in view of rejection at highest policy making level, chances of getting US agree to sign the pact have diminished.
US argued that “India did not meet the legislative requirement of minimum social security net [SSN] for 50% of its population.” When, attention was drawn to Atal Pension Yojna [APY], Pradhan Mantri Jeevan Jyoti Bima Yojana [PMJJBY] and the Pradhan Mantri Suraksha Bima Yojana [PMSBY] covering many millions more under SSN, in addition to customary coverage under Employees Provident Fund Organization [EPFO], USTR retorted that being “non-mandatory”, these schemes did not qualify for social security.
US officials opined that they are open to discussing new social security schemes that India may launch which could make it eligible for SSA. But, this is of no use so long as the condition of mandatory coverage remains. In a country of India’s size where 25-30% of people live below poverty line and millions are unemployed, a guaranteed state support will de-stabilize government’s budget.
India’s contention that it had concluded successful SSAs with a number of other countries such as Canada, France and Germany which also have similar pacts with the US also failed to make an impact on US officials. The latter demonstrated a typical syndrome of ‘take it or leave it’.
What is India’s interest in signing SSA with US? What is the connection between SSA and India having a SSN? Why is US insisting on SSN as a pre-requisite – that too mandatory – for signing the deal? Is US stance justified?
Under US law, all professionals/employees working therein are required to pay taxes [typically @ about 15 per cent of their salary] towards Social Security – the largest social welfare program in the US, accounting for 37% of government expenditure and 7% of GDP. However, to avail of benefits [or refunds] they must complete 10 years of mandatory contributions.
Indian IT companies send their employees under H-1B visa [given only for six years] mostly on project related short-term assignments. Since, their stay in US is normally three to six years, their contributions to social security are virtually forfeited. The companies are paying US$ 4 billion annually in such taxes and in the past decade, they have contributed a total of $25 billion.
This is outright unfair and discriminatory as US government does not give back to employees their own money which latter contribute in the hope that this will be useful to them when they age. In India, EPFO does not hold back their provident fund [PF] contributions, if an employee decides to leave the job before reaching superannuation. In an event of change in job, he is allowed the facility of portability. Why does US act differently?
The genesis of the problem lies in the US administration imposing an artificial time ceiling [read 10 years] for the purpose of availing refund. The facility of refund should be available irrespective of the number of years an employee has made the contribution. During negotiations with Indian authorities in the past, US had brought this idea to the table but, later retracted.
The anomaly can addressed if US signs SSA with India. Under it, Indian workers going to US on H1B visa will be exempt from contributing to social security as they are not eligible for refunds. The arrangement will be reciprocal in as much as US professionals working for short duration in India will also be entitled to refund of deductions made from their salaries here.
True, the number of US professionals working in India is ‘negligible’ when compared to Indian workers in US. But, this should not come in the way of applying the principle which has to be necessarily non-discriminatory. Even so, with Indian economy moving on a fast growth trajectory, number of US workmen in India will only increase leading to a more balance scenario.
The requirement of 50% of India’s population to be under SSN [insisted by US] is ‘extraneous’ to the issue at hand. What is relevant is whether employees who move to US are covered by SSN in India? For instance, if they are contributing to PF, that should suffice. Once GOI/EPFO issues a certificate of coverage [CoC], that will be a good basis for exempting them from social security tax in US.
Whether or not GOI covers rest of the population under SSN? Whether such cover is mandatory or voluntary? These questions are irrelevant and should not have been brought to the table. Yet, US has flagged these purportedly to cling to its unjust and untenable stance. And, India by acquiescing in – walking extra mile to argue that it is striving to meet those requirements – is getting trapped.
Indian government should change its strategy. It should de-link signing of SSA from the overall national coverage under SSN arguing that this is absolutely irrelevant to the subject matter. It should only harp on whether the employees Indian companies move to US for short-term work are under SSN or not.
It should impress upon US authorities that there is no logic in their holding back contributions by Indian employees who cannot stay there permanently to avail of the refunds. It should highlight the bigger gains that will flow by increasing trade and investment and boost to US economy by removing this major irritant.
US should shed its intransigent stance and quickly move in to sign SSA with India which will go a long way in unleashing the potential and help the two countries to increase trade from current about US$ 100 billion to US$ 500 billion in next 5 years.