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Wednesday, Jul 10, 2002

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Cabinet may step in to resolve EPF stand-off

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THE stand-off between the Labour and Finance Ministries over retaining the interest rate on Employees' Provident Fund (EPF) deposits for 2002-03 at 9.5 per cent may have to be resolved by the Union Cabinet.

The issue will be referred to the Union Cabinet if the Finance Ministry does not endorse the Central Board of Trustees' (CBT) recommendation to retain the interest rate on EPF deposits at 9.5 per cent, according to the new Labour Minister, Mr Sahib Singh Verma.

"There is no question of changing the interest rate on EPF deposits. We will not allow curtailment of benefits to employees and if necessary we will take it up to the Cabinet," Mr Verma said, adding that he would first take up the issue with the new Finance Minister, Mr Jaswant Singh.

The CBT of the EPFO had at its meeting in April this year unanimously rejected the recommendation of the Finance Ministry to cut the interest rate on EPF deposits to nine per cent.

Significantly, Tuesday's meeting of the CBT under the chairmanship of Mr Verma did not take up the issue of pruning the interest rate on EPF deposits. However, Mr Verma briefly touched upon the subject in his address when he said that it was his responsibility to protect the interests of EPF subscribers including ensuring that the rates were not reduced.

The CBT had made its stand clear in April when the former Labour Minister, Mr Sharad Yadav, maintained that the trustees were unanimous that it would be possible to sustain the rate of interest for the current financial year at the existing 9.5 per cent. "The issue has not been reopened since then," said a Trustee who attended the meeting.

The Labour Ministry's contention was that the EPFO would not have problems in crediting the interest on the monthly balances of subscribers at 9.5 per cent, despite the Finance Ministry's move to slash the interest rate on the Special Deposit Scheme (SDS) by 50 basis points to nine per cent with effect from April 1, 2002.

After accounting for the SDS rate cut, the interest earnings on the EPF during 2002-03 is projected at Rs 5,745.83 crore. If the interest payable were unchanged at 9.5 per cent, there would still be a surplus of around Rs 115 crore, which means that there would be no need to dip into the EPF's reserves on its interest suspense account.

According to the trustees, there is no need to align the EPF rate with that of small savings instruments. "It was not in alignment earlier also as the GPF rates were higher than the EPF rates. At that time the Finance Ministry did not bother. The aim of the Ministry seems to be only to ensure that Government borrowings are now carried out at lower rates," they said.

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