The Hindu Business Line : EPF rates

Trade unions raised a hue and cry and threatened to launch agitations. The Minister was forced to clarify that the rate is only an "interim rate" and hold out the hope of a review. Trade unions expressed concern about the rise in inflation rate that has touched 7.6 per cent this week.

It is not as though EPF rates have touched their lowest. You might find it interesting to know that the interest rate on EPF was as low as 3 per cent when the fund was started in the early fifties. It touched 4 per cent in the mid-sixties, 6 per cent in the early seventies, inching up steadily every year by a quarter percentage point.

It peaked in the period between April 1989 to June 2000 when the rates were 12 per cent and they have been on a downtrend since - in line with the other rates in the system. So just what is all the fuss about?

And since when did EPF rates have any link with inflation? As far back as 1973-74 and 1974-75, inflation rates were galloping at 20 per cent and 25 per cent respectively. The EPF interest rates in those years were 6 per cent and 6.5 per cent. Again when inflation reared up in the 1979-81 period to levels of 18 per cent, EPF interest rates were only 8.25 per cent.

Inflation rates actually shrunk to single digit rates during the last 10 years, coming down to as low as 3.6 per cent during 2001-03, while EPF interest rates remained anchored at levels of 12 per cent in the same period. So, as you can see, the link between the two is rather tenuous. This is going to annoy the unions and the common citizenry - but the numbers simply don't back you when you ask for higher returns based on inflation. You'll get it only if the EPF Trust earns better returns and not otherwise. Considering that the bulk of the provident fund contributions are invested in government securities, there doesn't seem much hope of that happening now. The benchmark 10-year government bonds offer a yield of 6.50 per cent and that too, after a significant jump of nearly 150 basis points over the past three months. Even meeting the "interim rate" will take some doing for the Central Board of Trustees.

More Stories on : Interest Rates | Small Savings | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Rainfall still not enough, says IMD

Advantages of freeing EPF investment

Post office is savers' best bet — Mop-up rises 32.45 pc in first quarter

PM sets tone for reforms — Focus to be on seven priority sectors

`The critical issue now is implementation of schemes' — Dr Montek Singh Ahluwalia, Dy Chairman, Planning Commission

Petro price hike, boon to State revenues

Indices may head further south

OBC chief allays fears of GTB customers

`Due diligence on banks must before depositing'

EPF rates — the number game

Law soon to regulate clinical establishments