Decision on EPF rate today

The Central Board of Trustees would hold a meeting with Labour Minister Sis Ram Ola on Wednesday to decide on the interest rate on the emplo...

The Central Board of Trustees would hold a meeting with Labour Minister Sis Ram Ola on Wednesday to decide on the interest rate on the employment provident fund EPF for the year 2004-05.

According to sources, the government is likely to keep the rate unchanged at 9.5 per cent though a sub-committee of EPFO is believed to have recommended slashing of interest rates to 8 per cent for its three crore subscribers.

Trade unions, cutting across party lines, have pitched for higher 12 per cent, saying it would still be well within the 8216;8216;limits8217;8217; and not lead to deficit for the country8217;s largest provident fund, totalling about Rs 75,000 crore.

The finance and investment sub-committee, which met here on Tuesday, is of the view that interest cannot be more than 8 per cent in view of EPFO8217;s declining returns from its investments. Moreover, over 70 per cent of the EPF accounts had less than Rs 4,000 due to early withdrawals and about one crore subscribers accounts were yet to be credited. Besides, 80 per cent of the EPFO8217;s investments were in special deposit schemes, which offer only 8 per cent return.

As EPF rates had political implications, particularly with Left parties giving outside support to the ruling UPA government, it is unlikely that rates would be tinkered with.

Once the CBT decides on the issue, it would be referred to the Finance Ministry after which the Labour Ministry would issue the necessary notification. Economists are of the view that the interest rate on EPF should be left untouched at 9.5 per cent, though trade unions have demanded a 3 per cent increase in the rate.

Foundation for Public Economics 038; Policy Research director Mahesh Purohit said that the present rate should be retained. 8220;Considering that we have no concrete social security scheme, the interest rate should be left untouched. The decision on interest rates would be based more on political circumstances rather than economic ones. However, the government should refrain from being tempted to increase the rate,8221; Purohit added.

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Charan Wadhva, president, Centre for Policy Research, echoed the same sentiments. 8220;It is a political issue rather than a pure economic one and party pressures will come into play,8221; he said, adding that the government must ensure than it is not increased.

Indian Council for Research on International Economic Relations ICRIER director Arvind Virmani said that it could lead to bankruptcy if the rate paid by the EPF is increased while the rate of investment remains unchanged.

The total corpus of the EPF is around Rs 1.28 lakh crore. This includes Rs 71 thousand crore of the employees provident fund, Rs 52 thousand crore of the employees8217; pension fund and Rs 4 thousand crore of the employees8217; deposit linked insurance scheme.