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Journalism of Courage
The Manmohan Singh government, presumably under pressure from the Left parties, has announced an Employees Provident Fund EPF rate higher than what the EPF earned in 2004-05. Under the EPF scheme Para 604, the interest liability of EPF cannot exceed the income earned by the EPF from its investments during that year. To give a rate higher than what was earned is the path to another US-64 type situation. Yet, the government has declared an interest rate of 9.5 per cent which will create a deficit of Rs 927 crore. Who will pay for the deficit, and indeed how will it be paid? When the EPF statues do not permit a clear subsidy to be paid, how will the EPF get higher returns when the interest rate on SDS, in which 80 per cent of EPF funds are parked, has not been changed.
At the root of the problem lies the way the interest rate on the EPF is determined. The Central Board of Trustees of the Employees Provident Fund Organisation, which has trade unions as members, in discussions with the government, decides the interest rate and the finance ministry ratifies it. Instead, the scheme should operate on the proper accounting principals on which fund managers and mutual funds operate. To use incoming contributions to pay high interest rates which are not sustainable can lead to bigger and bigger holes. Rates should not be 8220;declared8221; before the beginning of a year. Whatever is earned should be paid out as interest.
