India Provident Fund (PF): Asset creation based social policy, national development and empowering India
While living and working in Singapore , I could borrow my funds
from PF account for housing loans, family medical policies, and education for self and children. The
borrowing from my PF account did not involve an additional financial outlay from
my salary for housing loan down payments and installments. The disposal income allowed me to pay for my college and retrain myself, spend on qualitative benefits for my family and live a decent and fun filled life as I experienced financial security and happiness.
I wonder why this is not possible to borrow from PF account
in India
for purchasing a home. I stumbled upon this situation while initiating plans
for buying home in India; it was indeed very sad to notice that on one hand my PF funds were idling with interest rate of 9.5%pa and that
I was forced to borrow loans from banks for payment for a home at 11%pa. I wonder how
many of my friends, family members and the general population would have had to
endure such pain.
In my view the borrowing from PF account for housing purpose help the
young build housing assets which helps asset creation, enhances financial and
social security, empowers people, boosts welfare and consumption, and fuels
economic growth. The reason why I say it
is borrowing because the house is mortgaged to PF authorities and also that
upon its sale the funds to the extent borrowed are returned to the PF account
with interest which then helps retirement funding.
Some potential benefits of housing asset based use of PF that I view are:
• Individuals
and couples, starting a family can immediately purchase a decent home and build
their nest. There is no waiting time to save enough for buying a home or look
up to savings of their parents.
• House
purchased at a young age helps manage housing inflation risk. For many middle
class Indians, buying a house is a true dream at age 35-40 or a pipe dream.
• Housing
asset ownership provides individuals with the ability to exert control over
resources that can increase individual and families financial security. In
short it empowers individuals and their families.
• As their
financial security is enhanced, the future aspirations and qualify of life can
be linked with positive economic, psychological, and social effects.
• Housing
ownership helps secures and enhances social welfare in the long run. Social
development over the long-term occurs primarily through investments and asset
accumulation.
• Housing
asset-based policy creates an inclusive, progressive society and accelerates
national economic growth.
In order to tune PF to an asset based approach here are a
few of my suggestions:
• Allow PF
members to withdraw loans from the account over and above the base fund amount
say INR 250,000 or such amount that covers at least 10% of initial down
payment.
• The initial
withdrawal from PF account should cover initial down payments for property up
to 10% of the property value purchased.
• Monthly
loan installment to banks can be paid from the PF account
• The
property purchased must be restricted to 1 property between the husband and
wife.
• The PF fund
of both the husband and wife must be allowed to be used for payment for
purchase of property.
• Property
must be jointly mortgaged between the bank and the PF fund.
• Upon sale
of the property, the proceeds of the property sale is returned to the PF
account with interest that would have been accumulated had the property not
been purchased.
Any change in PF policy without any change in mass housing infrastructure
development and promotion policy may fuel inflation in housing sector as more
funds are deployed for housing without enhanced supply of affordable homes.
With success of an asset based PF, there could be more
enhancements possible such as allowing PF funds to be used for medical
policies, government bonds and securities, education for self and children.
The experience and policies of Singapore PF provides a case
study for the potential of this approach though it may need tweaks from an
Indian context.
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