The Hindu Business Line : EPF trustees stick to 9.5 pc

THE stage is set for a fresh confrontation between the Finance Ministry and the Central Board of Trustees (CBT) of the Employees Provident Fund Organisation (EPFO), following the latter's decision on Friday to stick to its earlier recommendation of retaining the interest on EPF deposits for 2002-03 at 9.5 per cent.

"The trustees unanimously feel that it would be sustainable to fix the rate of interest for the current financial year at the existing 9.5 per cent'', the Union Labour Minister, Mr Sharad Yadav, told reporters after a special meeting of the CBT here.

The Minister, who is also the Chairman of the CBT, said the EPFO would not have problems in crediting 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.

According to the Labour Ministry officials, after accounting for the recent SDS rate cut, the interest earnings on the EPF during 2002-03 is projected at Rs 5,745.83 crore.

"If we were to declare the interest on EPF deposits at nine per cent, it would entail a payment liability of Rs 5,334.34 crore, leaving us with a surplus of Rs 411.49 crore. If the interest payable is unchanged at 9.5 per cent, we would still be left with a surplus of around Rs 115 crore, which means we do not have to dip into the EPF's reserves on its interest suspense account'', they pointed out. Mr Yadav said the CBT was of the view that the 9.5 per cent interest on EPF deposits — recommended on an `interim' basis in its earlier meeting on January 22 — should continue considering its financial sustainability.

"It is now for the Central Government (read Finance Ministry) to examine our recommendation. In case, it does not agree, we may convene yet another meeting'', he added.

The Finance Ministry has already signalled its intention through its announcement on March 30 to reduce the rate on the SDS — in which nearly 80 per cent of the EPF monies are parked — from 9.5 per cent to nine per cent for the fiscal.

Following this, it was widely believed that a reduction in the EPF rate would be a mere formality, given Mr Yadav's own admission after the CBT's January 22 meeting that the SDS rate would be the "controlling point in our decision making for the declaration of interest on EPF deposits''.

The fact that the CBT has, nevertheless, recommended the status quo on the EPF interest rate is largely being attributed to the ongoing meeting of the BJP's National Executive at Panaji, Goa.

"Already, there is widespread criticism within the party circles over the Budget move to bring down the interest on small savings and post office instruments, besides the interest on the General Provident Fund for Central Government employees. A reduction in the EPF rate at this time would only compound matters'', sources said.

It now remains to be seen whether the Finance Ministry would overrule the CBT's recommendations, as it has done in the last two years.

The interest rate on EPF deposits was slashed by the Finance Ministry from 12 per cent to 11 per cent for 2000-01 and further to 9.5 per cent for 2001-02. In both instances, the Finance Ministry's decision to cut EPF rates was preceded by reductions in the interest rate on the SDS account.

In unilaterally fixing the EPF deposit rate, the Finance Ministry has essentially exploited a proviso in the EPF Scheme, 1952. Under paragraph 60 (1) of the Scheme, it is the Government (i.e. the Finance Ministry) that declares the interest to be credited into the accounts of members "on the recommendations of the CBT''. The board's recommendations are, however, not binding on the Centre.

As on February 28, 2002, the total EPF corpus of unexempted establishments stood at Rs 60,135.46 crore, of which Rs 47,685.33 crore was invested in the SDS.

The rest of the accumulated monies were parked in bonds of public sector financial institutions (Rs 4,968.42 crore), Central Government loans (Rs 4,319.34 crore), State Government loans (Rs 2,429.22 crore) and Government guaranteed loans (Rs 733.15 crore).

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