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Govt to consider cutting EPF by 0.5%

The Labour Ministry said that EPFO is facing fund crisis and cutting is the only way to tide over the crisis, reports Sutirtho Patranobis.

india Updated: Jan 12, 2007 21:50 IST
Sutirtho Patranobis
Sutirtho Patranobis

The Government might consider cutting the Employees Provident Fund (EPF) rate by 0.5 per cent because of mounting deficit. The decision maybe taken when the Central Board of Trustees of the EPF Board meets on January 27.

While trade unions have been demanding an increase in the rate of interest, the best situation for them would be if the Government decides – keeping in mind the political importance of the coming assembly polls in four states – not to tamper with the current rate, which is 8.5 per cent. The total number of depositors in the scheme is more than 4 crore.

Labour Ministry sources said that the EPF Organisation was facing fund shortage and the only way to tide over the crisis is by cutting the interest rate.

If the government continues to give 8.5 per cent interest, a labour ministry officer argued, the EPFO would be left with a deficit of more than Rs 450 crores. If the interest rate is brought down to 8 per cent, it would have a paltry surplus of Rs 10.25 crore.
The last meeting of the Central Board of Trustees of EPF, which is the implementing authority, on December 7 was unable to take a decision on the rate of interest with trade unions staunchly opposing any rate cut.

This time too, they are expected to protest but with states and employer’s organisations supporting a cut, it could be possible to push through the cut.

Trade unions have consistently demanded a 9.5 per cent interest rate, representatives of employers and state and central government officials were of the view that the rate should be in proportion to the returns on the investments of the fund.
The government had last year cut the rate to 8.5 per cent for 2005-06 from 9.5 per cent in 2004-05. In fact, till a few years ago, the rate of interest was as high as 13 per cent.
The January 27 meeting of the EPF Central Board of Trustees is likely to decide on investing a part of the fund in stock market as income from investing in government-run Special Deposit Scheme (SDS), which gave only eight per cent interest, did not suffice, the sources said.

Currently, the money is invested in central government securities, state development loans and government guaranteed securities.

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