PF norms rolled back: U-turns show that govt just isn't getting it right
The Modi government owes an apology to the salaried class for the confusion and panic it created on account of the PF flip-flop
Prime minister Narendra Modi’s backroom strategists aren’t just getting it right when it comes to dealing with the pension funds (PF) of India’s salaried class. The decision to roll back the restriction to withdraw the full PF amount before the age of 58 is the second major U-Turn by the BJP-government on the PF issue in the last two months. Earlier, this government had to withdraw a budget proposal to tax 60 per cent of EPF savings following mass protests.
The NDA government is seemingly excelling the art of unveiling hurried, poorly thought out policies only to roll back at the first hint of trouble. It also shows the intellectual drought in Modi’s cabinet, especially in the finance ministry.
In the first place, the idea to meddle with the PF savings — the only major retirement savings for most of the salaried class in India — was a blunder. It’s not the job of any government to teach its citizens when and what to do with his retirement corpus or force savings habit. The simple reason being the use of that money, for every individual, is different and is purely a matter of personal choice.
More critically, policy flip-flops do not augur well for the Modi government, especially when state-elections are due. Remember, the PF episode is not the first instance of U-turns by the Modi government on major policy issues. From the very beginning, finance minister Arun Jaitley has got the crucial banking policy wrong, when he underestimated the capital requirement of state-run banks in his first budget but was later forced to relook at the stance at the insistence of the Reserve Bank of India (RBI).
It is natural that any attempt by the government to restrict his flexibility to access that corpus is met with stiff resistance. For Modi himself, this is a politically disastrous move. As mentioned earlier, PF is the only major source of savings for most of the salaried class, who do not have other saving such as real estate, gold or savings in other financial products.
Every individual (employed in a firm with more than 20 staff) is entitled to PF with certain amount is deducted from his salary every month and an equal contribution made by the employer. Interest is accrued on this corpus.
The Modi government owes an apology to the salaried class for the confusion and panic it created on account of the PF flip-flop. It was a major mistake (both politically and as a policy move) to tweak the PF withdrawal structure without taking the salaried class into confidence. This is evident with even the RSS-affiliated Bhartiya Mazdoor Sangh taking a strong stance on the government's stance on the PF issue.
"We have always maintained the PF corpus is workers' money and hence he should be given the flexibility to withdraw it as and when required," Pawan Kumar, one of the office bearers of BMS, has said.
Why is the government so much interested in restricting withdrawals from the PF corpus? The likely reason is that it wants to build a corpus of long-term funds that could be channelled into financing of long-gestation projects such as infrastructure. There is no harm if that is the idea since world over, countries use such long-term funds (PF, insurance) for this purpose on account of the asset-liability mismatches faced by the banking system.
But, if that is the idea, the government should have come with a full-fledged, well-thought-out policy after consulting all the stakeholders.
Probably, it was poorly advised and chose to unveil bits of half-baked ideas without consulting the trade unions—the biggest stakeholders in this case — only to withdraw later. Locking the PF funds with permission to withdraw for certain purposes (marriage, construction of house or medical emergency) wouldn’t have met with a panic reaction.
Also, the government could have considered offering higher returns to someone who chooses to keep his money until the retirement age to incentivise him not to prematurely withdraw PF funds.
But, the important point here is ultimately the decision on what to do with the PF money should be left to the individual. As Ratan Tata said once, ‘the government should have no role in telling people what to do’. Period.
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PFRDA takes various initiatives from time to time in order to simplify and improve the operational issues in National Pension System (NPS), like new functionality development under NPS architecture, simplification of account opening, withdrawal and grievance management
NPS is the lowest-cost pension product in the world today.
The NPS scheme is a good one, but the POP staff clearly need more training to handle exits; the exit process should be made single-window so that the subscriber knows what is going on and knows whom to check with; and last, the annuity products clearly need to be beefed up.