Lockdown Destroys Future as Workers Use Retirement Savings to Survive

Between April and late July this year, as much as Rs 30,000 crore has been withdrawn from the Employees Provident Fund Organisation (EPFO) which holds and manages an enormous Rs 10 lakh crore fund of workers’ savings. Revealing this, a recent news report, carried by a leading financial paper, quoted an unnamed official of the EPFO as saying that “the amount withdrawn between April and the third week of July is much more than the usual outgo seen over similar periods, and that pandemic-related job losses, salary cuts and medical expenses explain this substantial increase”. It is expected that the withdrawals will continue and by end of this month, one crore people would have withdrawn their retirement savings.

Failure of Government to Protect Workers

Ram Sewak Pal worked as a lathe machine operator in a medium-sized auto parts manufacturing unit in North West Delhi. Hailing from Chhapra district in Bihar, he used to regularly send half his monthly wages back home where his elderly parents and two younger sisters stayed in the village. They had only a small piece of land and Ram Sewak’s remittances every month kept the family afloat. After the lockdown, he was asked to stop coming for work, along with the rest of 150 workers. The month was ending, and he was worried about his parents and sisters back home.

“I borrowed Rs 10,000 from a local money lender at 6% monthly interest. My friends advised that I could apply to withdraw money from my PF account to repay him. So that’s what I did,” he told NewsClick.

He hasn’t given a second thought to using up his savings for the future. “What’s the use of money for future if my parents and sisters are starving today,” he said dismissively.

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He, and others like him that NewsClick spoke to, agreed that had the government strictly implemented its “announcement” that factory owners should not stop paying the wages or throw anybody out from their jobs, things would have been different. “The government did not have the courage to force employers to pay up – so we have been forced to sell off our future,” said a gaunt Ravi Kumar, another worker, who survived the two-month long lockdown by borrowing and scrimping on daily food.

Withdrawals Much More This Year

The EPFO withdrawal data shows that about 80 lakh workers withdrew the quoted Rs 30,000 crore amount. That works out to about Rs 37,500 per worker, on an average. Not a very big amount – but more than enough for a family of four to survive for two months in distant Chhapra, and pay off the usurious money lender in Delhi.

In the whole of last financial year (2019-20), EPFO paid off Rs 72,000 crore to 150 lakh workers/employees who were keeping their retirement savings with the government-run organisation. Clearly, this year’s withdrawals are exceptionally high and are caused by the loss of income suffered by lakhs of workers due to the lockdown.

Bizarrely, it seems that the central government was envisaging just such a possibility, and it was in fact, actively encouraging it. Finance Minister Nirmala Sitharaman had announced in March, shortly after the lockdown was declared, that EPFO subscribers can withdraw up to 75% of the amount or three months of the wages, whichever is lower, from their EPF accounts. This relaxation was portrayed as a big concession to ease the misery of workers who had lost their earnings and jobs. 

As pointed out by Ravi Kumar, this could have been avoided if the government had ensured that workers get their wages for the lockdown period. But the government had no plans it seems, to do that. Instead, it wanted the workers’ own savings to be consumed.

“The ill-planned and mismanaged lockdown that was imposed on March 24, and the refusal by the government to protect the earnings of workers has led to this pass where workers are mortgaging their future – to survive today,” said Tapan Sen, general secretary of the Centre of Indian Trade Unions (CITU), one of the biggest trade unions in India.

Declining Household Savings

Recent data from the Reserve Bank of India has shown that between March 31, 2020, and July 3, 2020 – the period covering the lockdown in various phases and the subsequent easing – Demand Deposits in banks got reduced by over 6%, as account holders withdrew from their savings to meet the expenses of day to day life during the lockdown. The currency with the public, on the other hand, increased by almost 10% in the same period. This again shows that common people who were without jobs and earnings were dipping into their savings in order to tide over the present economic distress.

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In a special report, forming part of the RBI Bulletin released in June this year, an analysis of household savings and liabilities showed that gross financial assets (bank deposits, LIC policies, investments, etc.) had dipped from 11.1% of GDP in 2018-19 to 10.6% of GDP in 2019-20. Meanwhile, financial liabilities (loans from banks etc.) had dipped even more sharply from 3.9% of GDP to 2.9% over the same time. Since household savings are around 60% of gross savings in the Indian economy, and thus the “major supplier of financial resources for gross investment”, the RBI was viewing this declining trend as worrisome. This trend was being caused by the deathly slowdown that had gripped the Indian economy since last year, causing households to cut consumption and use up their savings to survive.

Sen draws attention to the monstrous pain that was inflicted on the people of the country by the lockdown which ignored the economic condition of people, causing loss of earnings to 80% of people.

“EPFO has four crore live subscribers. As a last resort, they had their savings to depend on. What about the 35-40 crore other workers in India’s workforce who have no provident fund or any social security? Can you imagine how they survived?” said an angry Sen.  

The pandemic and its mishandling that put the economy into a deeper abyss has accelerated the process of impoverishment and pauperisation of the vast mass of Indian people. The using up of provident fund savings and bank deposits is just a symptom of that.

Also read:One Third Firms Failed to Pay PF Dues in April, Says EPFO Data