Financial Daily from THE HINDU group of publications
Saturday, Jul 27, 2002
Financial Daily from THE HINDU group of publications Saturday, Jul 27, 2002 |
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Industry & Economy
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Small Savings As official-level talks fail... Jaswant, Verma to sort out EPF rate cut issue Our Bureau
NEW DELHI, July 26 A FINAL decision on the proposed rate cut on Employees Provident Fund deposits to nine per cent will now have to be taken at the ministerial level. A formal decision to let the Labour Minister, Mr Sahib Singh Verma, and the Finance Minister, Mr Jaswant Singh, clinch the issue was taken here on Thursday. This follows the failure of official-level talks between the Labour and the Finance Ministries on the rate cut issue. "The stand-off on the proposed interest rate cut on EPF deposits continues, with both Ministries sticking to their respective positions," said a top Finance Ministry official. The Labour Ministry reckons that the EPFO would not have any problem in crediting the interest on the monthly balance of subscribers at 9.5 per cent without dipping into the interest suspense account. In fact, the Ministry has projected a surplus of Rs 115 crore even after the payout. The Finance Ministry, on the other hand, contends that this is a short-term view and has instead made out a case for aligning the interest rate on EPF deposits with the interest rate on the Special Deposit Scheme (SDS). The interest rate on SDS was cut by 50 basis points in this Budget. When the question of inter-generation equity was raised at the meeting, Finance Ministry officials pointed out there was an element of cross-subsidy entailed in giving a higher rate of 9.5 per cent to a new entrant to a provident fund scheme. "With interest rates heading southwards, the new subscriber stands to gain at the cost of an existing subscriber to the EPFO," said a senior official. In fact, only last week, Mr Jaswant Singh told Parliament that his Ministry had advised the Labour Minister to fix the interest rate on EPF deposits at 9 per cent. The advice was based on consideration of prudent asset liability management, absence of risk capital reserve, anticipated decline in income of EPFO in a soft interest rate regime and a recommendation of the Y.V. Reddy Committee to benchmark the interest rate on EPF to the average secondary market yield on Government securities.
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