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EPF: Has Arun Jaitley alienated BJP's core vote bank?

Neeraj Thakur | Updated on: 10 February 2017, 1:50 IST

The NDA government has faced shortage of funds over the past 2 years as tax collections have been lower than expected. In its budgetary estimates, the government has projected that its gross tax revenue will go up by 11%. This is why, Finance Minister Arun Jaitley, in February this year experimented with two very unpopular measures to increase its revenue.

First, the finance ministry tried to tax 60% of the withdrawal of deposits made under the Employees' Provident Fund. Then after protests, the ministry tried to dilly dally and said that only the interest earned on the 60% deposit would be taxed. But under pressure from the middle class and Opposition, it decided to completely withdraw the notification.

But then came another issue - the government wanted to have a say on when you withdraw money from your EPF account.

Protests from the Opposition & labour unions forced the govt to backtrack on EPF

The EPFO had amended the EPF Scheme 1952 to revise norms, including an increase in the age limit for filing such claims by retiring employees from 54 years to 58 years. Also, the EPFO mandated that the subscriber could withdraw only his contribution and interest accumulated on that - if he had remained unemployed for more than two months - the employer's contribution could be withdrawn only on maturity.

The notification on PF withdrawal was originally to be implemented from 10 February but was later put on hold till 30 April and then further deferred till 31 July.

But large scale protests from labour unions and workers' groups opposing this amendment to the EPF Act forced the government to announce cancellation of the government's notification on this issue.

What lesson should the NDA government take from here?

The middle and the lower middle class in India does not have any social security. If we set aside the last one year when the Reserve Bank has managed to bring down inflation significantly, the people of the country have faced high inflation for the last 8 years with very little avenues for investments that give a positive rate of return.

Also, EPF has always been used by people as a fund that they can fall back upon during tough times and important milestones like marriage in the family, educations of kids or construction of homes. To save money in the EPF, people have to cut their day to day expenses only in the hope of saving for the important and critical times in their lives.

To top all this, the government has not given anything to the middle class in the last two budgets.

The income tax slabs have not been reduced and there has not been any significant rise in the income of people. Given this scenario, it was easier for opposition and the trade unions to mobilise the middle class on this issue.

Embarrassment for the government

The middle class vote matters to every government as it has the strongest voice in the electoral politics. Mass protests by the middle class against the NDA has given arsenal to the Opposition to project the government as anti-people.

During the UPA's time, BJP had managed to create problem for the government on the issue of hike in petrol prices and corruption. Now the tables have turned and the trade unions and the Congress are mobilising the middle class against the current NDA government, presenting it as pro-corporate and anti-aam aadmi.

Traders' rage

Another decision that backfired for the government was to levy a 1% excise duty on non-silver jewellery.

Jewellers, bullion traders and artisans in several parts of the country went on a strike that lasted 43 days. Even though the traders were forced to give up their strike as the government did not show any signs of coming to the negotiation table, come future elections, BJP will know that it has lost its traditional vote bank of jewellers community.

Jaitley has faced criticism over the past two years for not running the economy well. After the 2016 Budget, he will face one more criticism- alienating the middle class and party's loyal vote bank of jewellers'.

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First published: 20 April 2016, 8:53 IST
Neeraj Thakur @neerajthakur2

As a financial journalist, his interface with the two dominant 'isms'- Marxism and Capitalism- has made him realise that an ideal economic order of the world would lie somewhere between the two.

Senior Assistant Editor at Catch, Neeraj writes on everything related to business and the economy.

He has been associated with Businessworld, DNA and Business Standard in the past.

When not thinking about stories, he is busy playing with his pet dog, watching old Hindi movies or searching through the Vividh Bharti station on his Philips radio transistor.