People's Democracy

EPF INTEREST RATE

Finance Ministry Forces EPFO To Dip Into Reserve Fund

THE obstinate refusal by the finance ministry to accept either of the two alternatives mooted by a sub-committee, constituted under the chairmanship of the additional secretary (labour), has forced the Employees Provident Fund Organisation (EPFO) to dip into the special reserve fund (SRF) for bridging the gap between the interest earnings on EPF investment and a pay-out of interest at 9.5 per cent rate. (The alternatives were either to provide a one-time budgetary support or to enhance the interest rate on the special deposit scheme.) This is a dubious route to ‘honour’ the prime minister’s commitment not to reduce the interest rate on EPF and has ominous portents for the future. The special reserve fund had been constituted in the past from out of the forfeiture of employers’ contributions in respect of workers exiting the EPF before completion of five years of service. This forfeiture clause in the EPF scheme had been deleted in 1990 and there is no further inflow into the SRF, except for interest accruals. This SRF is utilised to help the outgoing members or their nominees/heirs, where an employer had defaulted in payment of the provident fund contributions collected from workers. The move to draw around Rs 716 crore will almost empty the corpus in the SRF, built over four decades, and the workers of defaulting establishments will be denied of any relief in the future

The workers’ side in the Central Board of Trustees (CBT) (excepting the INTUC) had opposed this proposal to divert funds from the SRF and wanted the labour ministry to once again approach the finance ministry for enhancement of the rate of interest on special deposit scheme (SDS), at least to the extent of honouring the prime minister’s commitment (of 9.5 per cent).

Once again, the chairman of the CBT has taken recourse to announcing a decision by majority. This decision is not only short-sighted but will also lead to a steep fall in the interest rate on EPF even for the current year (2005-06). When the finance minister has admittedly expressed concern over the rising inflation and the upswing in the interest rates in the banking system, this refusal to enhance the administered interest rate defies logic.

The CITU deplores the present move, as it is only aimed at retaining the 9.5 per cent interest rate temporarily for the last year (2004-05) without attempting a long-term solution. The CITU appeals to the prime minister to impress upon the finance ministry to enhance the administered rate of interest, which would provide succour not only to the EPF subscribers but also to the vast community of small savers, government employees covered by the OFF and the PPF subscribers.

TRADE UNIONS’ LETTER

Following is the full text of the letter jointly written by D L Sachdev (AITUC), W R Varada Rajan (CITU), A D Nagpal (HMS) and Sankar Saha (UTUC-LS) to K Chandra Shekhar Rao, union minister for labour and employment, and chairman, Central Board of Trustees, Employee Provident Fund, regarding the interest rate on employees provident fund for 2004-05.

We, the undersigned members of the CBT, EPF, draw your kind attention to the PIB press release issued on Thursday, February 3, 2005, under the caption “government announces 9.5% interest rate for employees provident fund.”

It has categorically been stated in the said press release that “the government has decided to give the interest rate at 9.5 per cent on the deposits of the employees’ provident fund subscribers for 2002-03, 2003-04 and 2004-05.” We request you to pursue with the government of India the earlier CBT recommendation for enhancement of rate of interest on special deposit scheme (SDS) at least to the extent of giving effect to the government decision taken with the approval of the hon’ble prime minister of India.

Accordingly, this special meeting of the CBT being held today (May 28, 2005) may recommend declaration of interest at a rate not less than 9.5 per cent for the year 2004-05.

We record our stand that any proposal aimed at reduction of the interest rate on EPF from the one as announced in the PIB release dated February 3, 2005 is unacceptable to us.