The EPF lesson

The speed at which the govt the withdrew EPF tax tells us two things—the power of the small elite that is the biggest beneficiary, and the inability of the Modi govt to stick to its guns

The speed at which the government has dumped its proposal to partially tax withdrawals from the Employees’ Provident Fund tells us two things—the power of a small but vocal elite that is the biggest beneficiary of subsidies from this scheme, and the growing inability of the Narendra Modi government to stick to its guns.

Almost every expert agrees that the National Pension System is a far better way to create steady retirement pensions in a society where lifespans are increasing. It stands to reason that it should become more fiscally attractive than the EPF; untaxed bullet withdrawals from the latter are likely to be frittered away because of the old behavioural malaise of hyperbolic discounting.

That said, there is no doubt that the government could have done a better job explaining what it had set out to do. A basic mistake was announcing the policy change in the budget. It would have been better to build a consensus separately before making the change.