EPFO on its own: No subsidy from govt

 A day after announcing a 9.5 per cent interest rate for the Employees Provident Fund (EPF), the finance ministry said the government did not propose to raise the rate for the Special Deposit Scheme (SDS) or provide budgetary support.

 Labour ministry officials, however, said the government would need to provide support to sustain the new interest rate. They said the 9.5 per cent interest rate for three years would leave the Employees Provident Fund Organisation (EPFO) with a net deficit of around Rs 485 crore.  "There is no plan to give subsidies. The gap will be met through more focus on collection of arrears," Expenditure Secretary D Swarup told reporters here.  "The EPF rate rise will not impact my determination of the small savings rate. It need not signal a rising rate trend," he added.  Official figures released by the labour ministry put the EPF deficit at Rs 927.15 crore after a 9.5 per cent interest rate for the current year.  The interest income was projected at Rs 5,919.42 crore when the Central Board of Trustees (CBT) recommended an 8.5 per cent interim interest rate in August 2004. The liability on account of this rate would have been Rs 6,125.87 crore, leaving a deficit of Rs 206 crore.  The deficit could have been met by the Rs 708 crore surplus generated during 2001-02 and 2002-3. But with the deficit growing to Rs 927.15, the net deficit will now be around Rs 485 crore.  The total corpus of the EPFO is Rs 1,28,000 crore, which includes Rs 71,000 crore of the Employees Provident Fund, Rs 52,000 crore of the Employees Pension Fund and Rs 4,000 crore of the Employees Deposits Linked Insurance Scheme.  The CBT, headed by the labour minister, had recommended 9.5 per cent interest for 2002-2003 and 2003-04 and an 8.5 per cent interim dividend for 2004-2005. The interest rates needed to be notified by the labour ministry in order to become effective but pending finance ministry clearance, it could not be done.  Officials said the CBT's formal approval for a 9.5 per cent interest rate for the current year would be required before the labour ministry issued the notification. "The CBT, comprising employees' representatives, which will meet later this month, is likely to clear the 9.5 per cent interest rate for 2004-05," said an official.  The CBT, in its meeting last month, had asked the government to enhance the interest rate on the SDS in which Rs 53,434.10 crore of EPF deposits (on October 2004) are invested. It has also sought permission for reinvesting interest from the SDS in the SDS itself.