Initially offered by post offices and branches of select public sector banks, today, most private sector banks can offer the provident fund scheme to the public, though they try and dissuade investors and distract them towards higher fee generating options like insurance.
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Even while jobs were scarce, opportunities few and entrepreneurship bound by the Licence Raj, the savings infrastructure was being expanded to serve small savers, the most important of which was the enactment by Parliament of the Public Provident Fund Act <1> on 16 May 1968 to “provide for the institution of a provident fund for the general public.” For small savers that were neither government employees nor working in the organised private sector, the PPF offers a starting point. Apart from getting a higher interest rate on the investment made in this 15-year scheme, subscribers had — and still do have — complete protection against attachment of this money, “under any decree or order of any court” in respect of any debt or liability incurred by the subscriber. <2> Initially offered by post offices and branches of select public sector banks, today, most private sector banks can offer this scheme to the public, though they try and dissuade investors and distract them towards higher fee generating options like insurance. In 2014–15, savings in PPF stood at more than Rs. 50,000 crore, or 17.5 percent of total small savings at a gross level but, being a long-term scheme, shot up to 91.4 percent at the net level. <3> For those who are starting out on their savings and investments journey and are risk averse, the PPF, with its Rs. 1.5 lakh per annum investment limit, is the first and best destination to get assured and government-guaranteed returns. But these are not sustainable and pension products must be delivered to the masses on a commercial basis. <4> Given the buoyant markets and excellent regulatory framework by SEBI, <5> those with a little risk appetite are shifting to equity mutual funds and creating wealth. Lost in the transition to market-linked pension products, however, is the National Pension System that began with much fanfare with the launch of the Pension Fund Regulatory and Development Authority but lost its way. <6> Given that by 2020, India’s demographic dividend would have peaked, <7> there is an urgent need to set up and deliver an extremely low-cost but marketlinked product. Until then, PPF will remain the backbone of small savers.
<1> The Public Provident Fund Act, 1968, 16 May 1968.
<2> Ibid., Section 9.
<3> Annual Report 2014–15, National Savings Institute, Department of Economic Affairs, Ministry of Finance, Government of India, 7, accessed 4 January 2018.
<4> Urjit R. Patel, “Aspects of Pension Fund Reform: Lessons for India,” Economic and Political Weekly 32, no. 38, 20–26 September 1997, 2395–2402, accessed 4 January 2018.
<5> Chapter 40: Securities and Exchange Board of India.
<6> Chapter 54: Pension Fund Regulatory and Development Authority.
<7> India’s soon-to-recede demographic dividend, Economic Survey 2016–17, Department of Economic Affairs, Ministry of Finance, Government of India, January 2017, 33, accessed 4 January 2018.
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Gautam Chikermane is a Vice President at ORF. His areas of research are economics, politics and foreign policy. A Jefferson Fellow (Fall 2001) at the East-West ...
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