PF restrictions rolled back: Flip-flop shows govt far removed from ground reality

The key question about the PF withdrawal norms is why is the government deciding what an individual should do with his/her money?

FP Staff April 20, 2016 10:40:26 IST
PF restrictions rolled back: Flip-flop shows govt far removed from ground reality

The government on Tuesday decided to revoke all restrictions it had proposed to on withdrawal of amount invested in provident fund. The decision came after violent protests erupted in Bangalore against the new norms.

Here are the various flip-flops the government did on the PF front:

How did it all begin?

First was a proposal in the Budget to tax employees provident fund.

“I propose to make withdrawal up to 40 percent of the corpus at the time of retirement tax exempt in the case of National Pension Scheme. In case of superannuation funds and recognised provident funds, including EPF, the same norm of 40 percent of corpus to be tax free will apply in respect of corpus created out of contributions made after April 1, 2016,” finance minister Arun Jaitley said in the Budget speech.

PF restrictions rolled back Flipflop shows govt far removed from ground reality

Garment workers' protest in Bengaluru. PTI

He also proposed a monetary limit for contribution of employer in recognised Provident and Superannuation Fund of Rs 1.5 lakh per annum for taking tax benefit.

The salaried class protested. An online petition seeking withdrawal of the proposal went viral. A quick poll done by Firstpost showed, 68 percent of the 1651 respondents was of the view that the proposal had eroded the government's standing among the salaried. Finally, the government withdrew the proposal in the early March.

But on 10 February, 2016, in a notification, the government said an employee contributing to the Employees's Provident Fund will not be allowed to withdraw the entire corpus. It basically meant that anyone who has been unemployed for two months or more can withdraw only his own contribution and the interest that has accumulated on it.

Further, the second portion i.e. the employer's contribution to the EPF and the interest accumulated on it can only be withdrawn at the retirement age of 58.

The EPFO amended the EPF Scheme 1952 accordingly.

Previously, an employee could withdraw the entire corpus accumulated under the EPF tax free.

The norm was to be effective from 1 April. However, the trade unions were not happy with the new rules. So the government allowed time until 30 April implementation of new norms.

What are Tuesday's twists and turns?

In a meeting held on Monday, labour minister Bandaru Dattatreya, after receiving representations from trade unions, said the government revoked some of the restrictions impositions. He said the government would now allow withdrawal of funds for some specific reasons such as use for housing, major medical treatment for self and family members, medical, dental and engineering education of children, and for their marriage.

While this was no official notification, clarity still eluded. By noon on Tuesday PTI reported the withdrawal norms have not been relaxed but the ministry is considering such a proposal. It also said the government has put on hold the restrictions and those who wanted to withdraw their PF amount can do so until 31 July. The window was earlier 30 April. "The notification (tightening PF withdrawal norms) will be kept in abeyance for three months till July 31, 2016. We will discuss this issue with the stakeholders," Labour Minister Bandaru Dattatreya told reporters.

Meanwhile, Bangalore started burning. Trade unions of a garment factory unit had been up in arms against the restrictions and agitating from Monday. By Tuesday noon, the stir turned violent. The protesters torched several buses, held up traffic in the city and suburbs and several buses and attacked a police station. Police resorted to lathicharge and firing teargas shells to disperse the protesters.

Finally, by late evening, the labour minister announced in Hyderabad that all the restrictions have been withdrawn. "The notification issued on 10th February, 2016 is cancelled. Now the old system will continue," Dattatreya said at a press conference adding that he would take ratification from CBT (Central Board of Trustees of EPFO).

According to the statement, workers will now be allowed to withdraw the entire amount from the provident fund as per existing provisions of the EPF Scheme 1952 including the employers' share of 3.67%.

Giving reasons for the rollback, Dattatreya said, "The reason is the request of trade unions. The earlier decision (to tighten the PF withdrawal norms) was also taken by the opinion of the trade unions. Now, when the trade unions are requesting, then we have rolled back the decision." He also said employees and workers need not have any misconceptions in the wake of the cancellation of the notification.

Why is the roll-back a failure of the Modi government?

It was an epic U-turn by the NDA government and betrays its weakness.

For one, it should not have brought in such a reform at all. It was based on wrong premises. That is why the whole exercise lacked clarity right from the beginning. There are many complexities and each clarification only added to the confusion.

“First of all, they should not have issued the notification in February," A K Padmanabhan, board member of the CBT and president of CITU, has been quoted as saying in a report in The Indian Express. "This is a bureaucratic bungling, which could have been easily avoided. They did a mistake and they have corrected it. It should not have happened in the first place," he says.

The key question is why is the government deciding what an individual should do with his/her money?

Also, the blocking of the PF amount until one turns 58 puts those in the lower income bracket in a difficult spot. As this NDTV article says, in case of garment factory workers, most of these workers are out of job by the age of 50. If they are not able to use their life savings for another 8 years, how are they supposed to survive. This is the reason the workers protested. In this backdrop the new norms showed that the government is far away from the reality on the ground.

With inputs from PTI

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