Union Labour Minister Bandaru Dattatreya has > backed off from enforcing new rules to restrict employees from emptying their provident fund accounts before they turn 58 years old. This is the second time in just over a month that the government has backtracked on a major policy shift concerning retirement savings in PF accounts. Another U-turn may be called for once the implications of new rules issued by the Finance Ministry to forfeit ‘unclaimed’ deposits in small savings schemes sink in. Earlier, Finance Minister Arun Jaitley withdrew two paragraphs of his Budget with a provision to >tax three-fifths of employee PF accumulations at the time of retirement . That rollback came within a week, in the face of a widespread political backlash. The rules restricting EPF withdrawals were notified nearly 10 weeks before they were rolled back. Though there were some murmurs of discontent and many rushed to withdraw PF balances from previous jobs, it was only when >violent protests rocked Bengaluru that the Centre changed tack. It first tried to buy peace with a three-month deferral and relaxations to allow employees access to their entire EPF balance for the marriage of children, the purchase of a house, enrolment in an educational course, and switch to a government job. Less than 24 hours later, the rules were simply scrapped. Most of the protesters in Bengaluru are employed in the textile sector, where India is fast ceding ground to Vietnam and Bangladesh; jobs are vulnerable and workers cannot take it for granted that they will be employed under the same conditions till the age of 58.
The violence may be seen as an act of desperation, and the Centre’s rationale — ensuring people don’t fritter away their PF savings during their working life — is good in theory. But it does not take into account the fact that people often withdraw EPF balances when they change jobs, simply because transfers are not handled smoothly at the PF office. Moreover, the labour market has undergone a paradigm shift; it is now characterised by greater job mobility, contractualisation and weaker security of tenure. A similar ‘we know what’s best for the people’ strand of thinking was evident in the Budget proposal to tax EPF savings. The Finance Ministry claimed it was meant to nudge people into buying an annuity with their retirement corpuses rather than blow them away. The quick rollbacks in the face of protests create an impression that the government hadn’t done its homework in these cases. Had it persisted, more people may have preferred informal jobs (without mandatory payroll deductions like EPF), thus defeating the larger objective of creating quality formal sector jobs, that account for just 10 per cent of the workforce. Micromanaging retirement choices for the privileged few is a waste of time. Redoubling efforts at providing genuine social security for the other 90 per cent of the workforce is a far better idea.