As social-security coverage expands, the real challenge lies in ensuring complete and effective compliance through technology-driven enforcement.
The preceding articles in this series examined various methods adopted by employers to avoid compliance under the Employees’ State Insurance Act, either wholly or partially, and the role sometimes played by inspecting officers in facilitating such practices.
These examples raise a broader question about the effectiveness of compliance mechanisms in an increasingly complex economy.
It is well recognised that some employers consciously seek to minimise their statutory obligations through sophisticated organisational structures and professional advice.
The India Employment Report 2024, prepared jointly by the International Labour Organisation and the Institute for Human Development, observed that registration of an establishment does not automatically ensure effective social-security coverage for all workers.
The report noted that workers may be employed in organised establishments while still remaining outside meaningful social-security protection.
Similarly, the Institute for Human Development’s study on the expansion of social security and labour standards in the organised sector found that growth in formal enrolments does not necessarily translate into a corresponding increase in genuinely protected workers.
It would be unfair to overlook the significant progress made in expanding social-security coverage in recent years.
The International Labour Organisation has acknowledged the substantial increase in social-protection coverage achieved in India during the past decade. This represents an important policy achievement and reflects sustained efforts towards extending the reach of social-security legislation.
However, when the position under the Employees’ State Insurance Scheme is examined more closely, the picture becomes more nuanced.
As of March 31, 2025, the Scheme reported about 24.84 lakh registered employers and approximately 3.24 crore covered employees. Yet only about 8.23 lakh employers were reported as contributory employers during the year.
While there may be legitimate explanations for part of this difference, the figures demonstrate that registration alone does not necessarily indicate active compliance.
The experience of SPREE 2025 (Scheme to Promote Registration of Employers and Employees) offered employers an opportunity to register establishments and employees without exposure to past contribution liabilities or punitive action for earlier non-registration.
In effect, it provided a voluntary compliance window supported by substantial incentives.
Notwithstanding these concessions, available indications suggest that a significant number of coverable factories and establishments have still not come forward for registration under the ESI Act.
While comprehensive national data regarding the outcome of the scheme may await publication, the apparent reluctance of many eligible establishments to avail themselves of an amnesty-style registration programme suggests that non-compliance cannot always be addressed through voluntary disclosure alone.
It is also a matter of concern that available indications suggest that a number of employers who obtained registration during the SPREE drive have not yet proceeded to register employees or commence regular compliance under the Act.
If this perception is borne out by data, it would once again demonstrate that the registration of establishments, though an important first step, cannot by itself be treated as evidence of effective coverage or actual compliance.
Further, despite the extension of the ESI Scheme to almost the entire country, it remains difficult to determine whether all establishments and employees who are legally required to be covered have actually been brought within the system. The existence of disputes relating to coverage, under-reporting of employee strength, non-registration of eligible establishments, contractual arrangements, and other forms of evasion suggests that numerical expansion of coverage and complete compliance are not necessarily the same thing.
These considerations indicate that the principal challenge today is no longer the absence of legislation. Increasingly, it is a question of implementation and enforcement.
The Code on Social Security, 2020 represents a significant departure from the traditional inspection model. Section 122 introduces the concept of the Inspector-cum-Facilitator and envisages an inspection framework based on:
Risk-based inspections;
Web-based verification;
Randomised allocation of inspections;
Digital reporting;
Technology-driven governance; and
Reduced human intervention in the selection of establishments for inspection.
Under this framework, inspections are intended to be guided by risk profiling rather than routine visits. Establishments may be selected for scrutiny on the basis of factors such as contribution defaults, significant reductions in employee strength, unusually low contributory days, prolonged absence of inspection, or other identified risk indicators.
This approach offers clear advantages. It promotes transparency, reduces discretion in the selection of establishments, and enables enforcement resources to be concentrated where risks appear greatest.
Digital systems can process information efficiently, but they are only as reliable as the data available to them.
A web portal may identify inconsistencies in reported information, but it cannot, by itself, determine whether workers have been deliberately omitted from records or whether employment relationships have been structured to avoid statutory coverage.
The Code has already laid the foundation for data-driven enforcement. The next stage may lie in the intelligent use of technology, including Artificial Intelligence, to strengthen compliance mechanisms.
The objective is not to replace inspectors or create intrusive surveillance systems. Rather, it is to assist enforcement authorities by connecting information that currently exists across separate databases and administrative silos.
For example, an establishment may report a substantial reduction in employee strength while simultaneously showing increased production levels, greater contractor engagement, higher electricity consumption or increased business turnover.
Viewed individually, each of these indicators may appear unremarkable. Viewed collectively, however, they may justify closer scrutiny.
An AI-assisted compliance system could analyse such patterns automatically, identify anomalies and generate risk alerts for further examination. Human authorities would continue to make the final decisions, but enforcement efforts could be directed more effectively towards establishments where the likelihood of non-compliance appears highest.
As employment relationships become increasingly complex and business structures more sophisticated, the future of social-security enforcement may depend not merely on stronger laws, but on smarter compliance systems capable of identifying risks that traditional inspection methods often fail to detect.
The real measure of success will not be the number of establishments registered, the volume of data collected, or even the growth in coverage statistics. It will be the extent to which every worker who is entitled to protection under the law actually receives it.
The challenge for policymakers and enforcement agencies is therefore not merely to expand coverage, but to ensure that coverage is complete, accurate and accompanied by genuine compliance. It is in this context that technology-driven inspections and intelligent compliance systems may play a crucial role in the future administration of social-security laws.
(Views expressed in this opinion piece are those of the author)
Read earlier parts in the series:
Part 1:
Part 2:
Part 3:
Part 4:
Part 5:
Part 6:
Part 7:
Part 8:
Part 9:
Part 10:
Part 11: