After deferring a decision on the Employees Provident Fund (EPF) interest rate for over five months,the EPFO Board today declared an 8.5 per cent return on investments of over 40 million subscribers for the second consecutive year.
Amid strong protests from employees representatives,the EPFO Board,chaired by labour and employment minister Oscar Fernandes decided to recommend to the government an 8.5 per cent interest rate. While the trade union leaders clearly wanted an upward revision,the fact is that even 8.5 per cent interest rate is unsustainable given the current financial position of the fund. However,in a politically sensitive year,the government is less inclined to look at the sustainability aspect.
To meet the full liability of interest payments the EPFO will have to dip into the contingency fund to fund an estimated shortfall of Rs 139 crore, a senior Board member told The Indian Express. The total corpus of the contingency fund at present is around Rs 150 crore. Earlier,the finance and investment committee of the EPFO had given the go-ahead to meet any shortfall from the contingency fund.
Even though,the Board member said the appointment of private fund managers has brought efficiency,the organisation still has a significant gap between its liabilities,estimated at Rs 10,692 at 8.5 per cent interest rate,and estimated income of Rs 10,552 crore. While the government had declared a return of 8.5 per cent for 2007-08,the actual rate of return on EPF investments was 8.39 per cent leading to a deficit. This deficit of Rs 264 crore was then funded through a special reserve. Clearly,at 8.5 per cent,the current rate of interest is unsustainable,leading to piling up of deficits over a period of time.
Earlier,in an effort to streamline the EPFOs finances,the labour ministry had decided to pare the benefits in a bid to wipe out the Rs 53,000-crore deficit in the EPS in October last year. It had issued notifications to reduce benefits for retiring employees. The move was later opposed by trade unions.