EPF move to cost govt Rs 1,000 cr

It is learnt that with the PM back from Mauritius today, the PMO will soon give directions to the Finance Ministry to support the 9.5 interest rate. Last week, the PMO was involved in the exercise to finally sort out the EPF interest rates with the Finance Ministry obviously not inclined to shell out the required sum and add to its deficit.

Sources said that a section of the Government was in favour of giving differential rates to cushion the hit but it seems that the PM is in favour of everyone getting 9.5 per cent interest as he has given a commitment.

The idea behind the differential rates was that those who have voluntarily deposited money in the EPF for better interest should be given the prevalent rates of 8 per cent, while those under the compulsory scheme should be given 9.5 per cent rate.

But the Government’s headache does not end here as the Prime Minister did not make 9.5 per cent interest rate as a one-time exception in his announcement. This means that the subsidy will climb up to Rs 1,300 crore if the EPFO decides to stick to the 9.5 per cent interest rate next year on the basis of the PM’s commitment.

A large chunk of the EPF corpus of Rs 1,30,000 crore is invested at a prevalent bank rate of 5.5-6 per cent, while some of the old investment is fetching around 13 per cent interest. With Labour Minister K. Chandrashekhar Rao going public against the EPF investing in stock markets and mutual funds, the EPFO can at best give a rate of 8 or 8.5 per cent. Interestingly, the Left parties were rather surprised when Manmohan Singh announced the interest rate of 9.5 per cent as the Left MPs privately told Cabinet Ministers that they at best expected the UPA to give a rate of 9 per cent.