8.5% EPF rate notified

EPFO to meet deficit of Rs 365.89 cr from its own resources.

The government today notified an interest rate of 8.5 per cent for the 40 million subscribers of the employees provident fund.

The move comes despite demands from trade unions and the Left parties for retaining the interest rate at 9.5 per cent, as in the last three years.

"The subscribers of the employees provident fund are to get 8.5 per cent interest on their deposits for 2005-06," the notification issued by the labour ministry said.

An official release said the EPFO would meet the deficit of Rs 365.89 crore on account of an 8.5 per cent interest rate from its own resources.

The total payout will be Rs 6,889.04 crore in interest to subscribers for the current fiscal, against a projected interest income of Rs 6,523.15 crore.

While the EPFO intends to once again tap 50 per cent of the Rs 240-crore in its special reserve fund to meet a part of the shortfall, another Rs 40-50 crore are expected to come by way of penal interest on defaulters.

So far, neither Rao nor the EPFO has said how the deficit will be bridged. When contacted, Labour Secretary KM Sahni, too, refused to comment on the issue.

Even at 8.5 per cent, the EPFO will be paying a higher interest rate than other provident funds. The general provident fund and public provident fund pay only 8 per cent interest.

The EPFO, the largest non-government provident fund, with a total corpus of about Rs 80,000 crore, invests two-thirds of this amount in the Centre's special deposit scheme, which earns an annual return of 8 per cent.

The EPFO's finance and investment committee had recommended an interest rate of 8 per cent which, if implemented, would not have resulted in a shortfall.

The Central Board of Trustees of the EPFO, however, authorised Labour Minister K Chandrasekhara Rao to take a final decision. Rao announced an interest rate of 8.5 per cent, overruling the finance and investment committee's recommendations.

He then met Prime Minister Manmohan Singh and Finance Minister P Chidambaram to apprise them of the growing demand from central trade unions to retain the 9.5 per cent interest rate.