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Survive today, save later


  • The rate at which Indians are drawing out their provident fund savings has gone up. This is a clear sign of financial distress across the country. Expect economic demand to stay depressed for some time to come

Gone are the days when you saved for a brighter future. The focus of large numbers in formal sector employment seems to be on survival, plain and simple. As many as 2 million Indians are reported to have dipped into their employees’ provident fund (EPF) savings in just 20 days of June.

In March, the government had introduced a rule under which EPF subscribers could withdraw up to 75% of their savings, or three months’ basic pay and dearness allowance, from their PF accounts—whichever was lower. But even at the end of June, as Unlock 1.0 gives way to Unlock 2.0, household incomes seem to be under severe duress.

Most subscribers of the government savings scheme rely on their EPF accounts for retirement, and thus like to hold on to the money till that point. But since 1 April, nearly 5.6 million claims were made (and settled), a significant proportion of them this month alone. This is clearly a last-resort measure, since few other safe savings schemes offer the high rate of interest that PF accounts do. Personal finance experts say it is better to take a loan against one’s PF, if possible, since that would work out better.

Distress in India must be especially acute if PF accounts are being drawn down. It’s unlikely that this money is being used for asset purchases or other big-ticket expenses. Many of those applying for a withdrawal are those who have either lost their jobs or suffered major salary cuts, and need cash for essentials. This state of affairs points to depressed demand across the economy for some time to come.

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