The Hindu Business Line : UPA Govt in a dilemma over EPF issue

THE issue of not crediting interest to the Employees Provident Fund (EPF) during the last three years and the Government's assurance in the Lok Sabha today that it was looking into "a favourable decision" on enhancing the interest rate on EPF by holding discussion with the Ministries of Finance and Labour reflect the dilemma of the United Progressive Alliance (UPA) Government led by the reformist Prime Minister, Dr Manmohan Singh.

The matter came up during the Question Hour when the Mr Gurudas Dasgupta and Mr Ajoy Chakraborty (CPI) sought to know from the Government as to whether it is a fact that for the three years in succession, including the current fiscal, the Employees Provident Fund Organisation (EPFO) had not credited interest in the accounts of the EPF members.

The Union Home Minister, Mr Shivraj Patil, on behalf of the new Labour Minister, Mr K. Chandraskehar Rao, said that the Government has not issued any notification in respect of rate of interest to be disbursed to EPF members for the years 2001-02-03, 2003-04 and 2004-05 so far. He said the Central Board of Trustees (CBT) of the EPF has recommended interest rates at 9.5 per cent and 9 per cent (plus additional Golden Jubilee Bonus interest of 0.5 per cent) for the years 2002-03 and 2003-04, respectively.

When Mr Dasgupta reminded the failure of the Government in not crediting interest to the EPF account during the last three years, Mr Patil said that he would not go into the "merit of what was not done" in the past by the previous Government; and as to the hike in interest rate he frankly admitted that "resources need to be raised" within the fund to provide for the higher interest income demanded.

Mr Dasgupta reminded the Government that as much as Rs 8,000 crore lay in "suspension" account of the EPF that could be utilised for disbursing the employees' legitimate dues of higher interest income.

As the existing corpus of EPF fund out of which 72 per cent is put into the Special Deposit Scheme fetching 8 per cent interest income, the question of providing higher interest rate above this level is unsustainable, the Minister said explaining that with its existing corpus of EPF, eight per cent interest payout to beneficiaries is sufficient from the fund; however, at 8.5 per cent interest, there would be a deficit of the order of Rs 206 crore, at 9 per cent the deficit would go further to Rs 566.80 crore and at 9.5 per cent, the deficit would be Rs 927.15 crore.

Not the one to get silenced by official explanation from the Treasury Benches, Mr Rupchand Pal (CPI-M) said that when inflation rate is going and interest rate is inching up, it would be a repudiation of responsibility on the part of the UPA Government by not providing higher interest rate to EPF members. He said the National Common Minimum Programme of the Government has promised to provide higher return from savings instruments to senior citizens and vulnerable sections of small-savers.

Policy analysts told Business Line here that if the Government were to temporise to the demand of a higher interest payout to EPF members of around 40 million in the organised sector coming under this facility, it might perforce have to find additional resources to fund this subvention by general tax across the board affecting other workers in the country who do not have any such guaranteed pension facility. That is precisely why the Ministry of Finance is reluctant to raise the bar on the interest rate without exploring other alternatives like deploying a portion of the extant corpus funds in a reasonably better return avenue and other structural and institutional reforms of the EPFO itself.

They bemoan the fact that instead of redeeming EPFO's legislative objective of giving old-age security, its interest rate instrument has been hijacked by political parties for meeting sectarian goals or pandering a small section of the organised workforce at the cost of the other constituents of the economy.