COVID-19 forces Indians to break retirement fund

The withdrawal of Rs.30,000 crore by subscribers from the Employees’ Provident Fund (EPF) from April to the third week of July 2020 underscores the depth of the financial crisis facing ordinary monthly wage earners in India. The economic downturn, job losses and revenue leakage created by COVID-19 prompted 80 lakh subscribers to withdraw money from EPFs invested for future income.

A total of Rs.8,crore was withdrawn through COVID window. Shortly after the nationwide lockdown at the end of March, Finance Minister Nirmala Sitharaman announced the opening of a special window to partially withdraw investments from the EPF.

For those who are facing financial difficulties due to the special circumstances created by COVID, the window provides for the withdrawal of three months’ basic salary along with dearness allowance or 75% of the balance in the EPF, whichever is less. Thirty lakh subscribers have used this facility so far.

Fifty lakh subscriber withdrew Rs.22,crore for medical purposes.This is a higher amount than was withdrawn during the same period last year. It is expected that the number of people who will opt for EPF withdrawals in the coming days will touch one crore.

Nirmala Sitharaman had earlier announced that the EPF deduction would be reduced from 12 per cent to 10 per cent for three months. The stimulus package also included this reduction in the amount that the people remit into EPF.

In other words, the Rs 20 lakh crore package announced by the government will include a reduction in the amount people have to invest in the EPF. The government has taken the bizarre step of including in the package even a reduction in their compulsory investment without providing any direct financial relief to the common people who are the victims of lockdown and recession.

The reason for the massive withdrawal from the EPF is the low income and job losses of workers in the micro and small enterprises sector.

The loss of income for the people has arrested consumption, the driving force of the economy. Micro, small and medium enterprises employ about 11 crore people. Earlier, it was reported that one-third of the enterprises in the region were shut down. This will result in the loss of billions of jobs, both direct and indirect.

Last year saw the country was witness to the highest unemployment rate in 45 years. Corona came at a time of crisis in the job market and the small business community. The lock-down has exacerbated the underlying financial problems.

Even if we tide over the COVID-19 crisis, a good percentage of closed enterprises are unlikely to reopen. Therefore, the extent of job losses is very high. Additionally, as inflation rises, the number of people who are unable to meet the cost of living will increase.

With rising inflation, the cost of living is also rising. The Central Government needs to take immediate action to address at least a small number of such fundamental issues. If another package is to be announced, it should at least include schemes that provide direct financial support to the people. Those who lead the government would be considered inhumane if they are not willing to do so.