EPF board meeting today to decide on rates for ’04-05

The EPFO, with a corpus to the tune of Rs 1,40,000 crore and with over four crore subscribers, puts 80 per cent of its deposits in the special deposit schemes where the return is to the tune of 7 per cent to 8 per cent. Hence there is little that the Fund can do to bridge the gap.

The options before the Fund are limited. With the Finance Ministry ruling out any subsidies, the Fund had employed global consultants Mercer to look into avenues to generate higher returns from investments.

However, it is unlikely that the Fund will be allowed to invest in equities and postal deposit schemes.

The finance ministry had earlier too ruled out the option of allowing the Fund to invest in postal deposit schemes as it will lead to double subsidy.

The only option at present, if it ratifies the rate announced by the FM, is to dip into its suspense account (which consists mostly of unclaimed accounts) which runs into Rs 1,000 crore. There is also a reserve to the tune of Rs 500 crore, but it is unlikely that the EFPO will dig into its reserves.

Given the limited options, the Board might have to settle for 8.5 per cent despite the labour ministry pitching in for increasing the interest rate by one per cent from the interim rate. The meeting will also discuss the interest rate for 2005-06.

While the EPF earned a surplus of Rs 204.92 crore during 2002-03, there was shortfall of Rs 271 crore in 2003-04. For 2002-03, the EPF board declared 9.5 per cent interest while for 2003-04 it was 9 per cent along with a 0.5 per cent bonus on the occasion of EPFO’s golden jubilee year.

In fact, an investment and finance sub-committee of EPFO has recommended 8 per cent for 2005-06.