Hara-kiri committed with PF over 30 years, says J&K FM

Previous governments in Jammu and Kashmir have been committing "hara-kiri" with the Provident Fund for the last 30 years, the state's Finance Minister Haseeb Drabu alleged today, likening it to "Ponzi" fraud and emphasising the need for "quick corrective" action.
He warned that if changes to the accounting system were not effected now, the state government may not be in a position to pay the Provident Fund to the employees.
The government has been utilising the net accruals on account of Provident Fund as captive resources to finance its day-to-day expenditure, Drabu said in his Budget speech in the Assembly here.

"To make matters worse, instead of accounting what it had borrowed from its employees, the net General Provident Fund (GPF) was grossly understated in the budget so as to get a higher allocation of market borrowings. This fiscal hara-kiri has been committed year after year for the last 30 years or so.
"With no cash in the PF kitty, the outflows which get crystallised year after year, are being paid from current inflows. It is a classic version of what in financial circles is called a Ponzi game," Drabu said.
Ponzi is a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.

Drabu said he would leave it to the house to debate and decide whether it was a "fraud perpetuated by earlier governments or a primitive accounting error".

"The real threat of fiscal crisis, which I am raising now, should have been highlighted in 2009 when the New Pension Scheme was introduced in the state. For, post the NPS, the new inflows have stopped while the old outflows are continuing," the Finance Minister said.
"Unless quick corrective action is taken now, in a few years, the state government will not be in any financial position to pay back what it has borrowed from its own employees," he said.

He said normally the amount deducted as provident fund contribution should have been earmarked and invested in long term financial instruments, so that the government got a return on the corpus to fund the interest it pays to employees.
But "this was not done", he said adding "the net result of this incorrect budgetary practice has meant that the total liability on account of provident fund, which is completely unprovided for, is Rs 14,058 crore as on March 31, 2015.
"The same procedure has been followed for State Life Insurance Scheme for government employees for which the liability is another Rs 588 crore," he added.

The Finance Minister assured the employees that the government will overhaul the PF accounting system, make provisions and address this issue.
"It needs a major, painstaking and a creative clean up. If need be we will put in place a line of credit to pay what is due to our employees. Let there not be any panic," he said.
He said the PDP-BJP government, which took over in March last year, has already improved the system.
"Not so long ago, the withdrawal of part or full PF by our employees used to be a nightmare as their bills would remain pending in the treasuries for six to eight months.

"Today, and I am sure the employees will vouch for this, they are receiving their PF dues within a day or so of their presentation of the bill," he said.