EPF board fails to decide interest rate

The Central Board of Trustees of Employees Provident Fund today failed to decide the interest rate to be given this fiscal. The board decided to consult the government as it tries to prevent an erosion of reserves.

This came following differences among the board members about the Employees Provident Fund Organisation's (EPFO) view that more than 8 per cent rate will not be sustainable given the returns from the EPF.

While representatives of the employers (10) and those of states (15) and the Centre (5) in the 43-member board supported the EPFO's stance that the interest rate should be decided on the basis of yield from the fund, trade union representatives (10) demanded a rate of 9.5 per cent.

The trade unions cited Prime Minister Manmohan Singh's assurance in 2004 that the UPA government would not lower the rate than what was fixed by the NDA regime, according to WR Varadrajan, CITU leader and a CBT member.

They said that the government had unilaterally reduced it to 8.5 per cent last fiscal, but they would not be party to any such decision this year, according to sources present in the meeting.

Given the differences, the CBT decided to authorise Labour Minister Oscar Fernandes to talk with the prime minister and Finance Minister P Chidambaram to work out an acceptable rate.

Interestingly, unlike last year, the labour minister did not try to pitch for a majority decision despite the fact that trade union representatives were outnumbered by those favouring a lower rate of interest.

Sources said the minister apparently did not want to take on the trade unions, especially after Congress-backed INTUC also went along with the Left-backed unions.

The issue of the proposed investment of 5 per cent of the EPF in the equity market did not come up for discussion today, according to sources.