In a just concluded meeting of the Trade Policy Forum, United States Trade Representative (USTR) Mic-hael Froman, emphatically rejected India’s request for signing a Social Security Agreement (SSA), nick named totalisation pact.
The US argued that, “India did not meet the legislative requirement of minimum social security net (SSN) for 50 per cent of its population.” When Commerce Minister Nirmala Sitharaman drew his attention to the Atal Pension Yojna, Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana in addition to Employees Provident Fund Organisation, the US official’s reaction was that being “non-mandatory”, those schemes did not qualify for social security.
The USTR opined that he is open to discussing new social security schemes that India may launch which could make it eligible for the SSA. However, this is of no use so long as the condition of mandatory coverage remains. In a country of India’s size where 25-30 per cent of people live below poverty line and millions are unemployed, a guaranteed state support can lead to a financial disaster.
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 the US? What is the connection between SSA and India having a SSN? Why is the US insisting on SSN as a pre-requisite – that too mandatory – for signing the deal? Is the US stance justified?
Under the US law, all professionals/ employees working therein are required to pay taxes (typically at about 15 per cent of their salary) towards social security – the largest social welfare program-me in the US, accounting for 37 per cent of government expenditure and 7 per cent of the GDP. However, to avail of be-nefits (or refunds), they must complete 10 years of mandatory contributions.
The Indian IT companies send their employees under H-1B visa (given only for six years) on project related short-term assignments. Since their stay in the US is normally for three to six years, their contributions to social security are forfeited as they do not comply with the condition. The companies are paying $4 billion annually in such taxes, having already sunk $ 25 billion in last one decade.
This is unfair and discriminatory as the US does not give back to employees their own money which the latter contribute in the hope that this will be useful to them when they age (this indeed is the raison d’être behind the concept of social security). Simply because a job is outsourced to a person who is not a US citizen, does not change the underlying fundamentals.
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, the US had brought this idea to the table but later retracted.
The anomaly can addressed if America signs SSA with India. Under it, Indian workers going to the 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 cannot be constrained by the number of potential beneficiaries on either side. Even so, with the Indian economy moving on a fast growth trajectory, the number of US workmen in India will only increase leading to a more balanced scenario.
Extraneous issues
The requirement of 50 per cent of India’s population to be under SSN (insisted by the US) is extraneous to the issue at hand. What is relevant is whether the employees who move to the US are covered by SSN in India or not? For instance, if they are contributing to the provident fund, that should suffice. Once the EPFO issues a certificate of coverage, that will be a good basis for exempting them from social security tax in US.
Is the rest of the population covered under SSN? Is such cover mandatory or voluntary? These questions are irrelevant and should not have been brought to the table. Yet, the US has flagged these purportedly to cling to its unjust stance. And, India by acquiescing in – walking extra mile to argue that it is striving to meet those requirements – is getting trapped.
The Indian government should change its strategy. It should delink signing of SSA from the overall national coverage under SSN and only harp on whether employees Indian companies move to US for short-term work are under SSN or not.
It should impress upon the US authorities that there is no logic in their holding back contributions by the 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 the US economy by removing this major irritant.
The US should shed its intransigence 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 $100 billion to $500 billion in the next five years.
(The writer is a New Delhi-based policy analyst)
http://www.deccanherald.com/content/515725/us-should-shed-rigid-stand.html