Manmohan warns against EPF going the UTI way

Prime Minister Manmohan Singh said today that the Employees Provident Fund Organisation (EPF) should not meet the same fate as that of the Unit Trust of India (UTI).

The Prime Minister made the comment in the course of his meeting with trade union leaders this evening. Singh's comments came in the wake of demands made by the leaders of various trade unions for raising the rate of interest being offered by the EPF to its depositors.

The EPF currently pays 9 per cent and 50 basis points as bonus for the last fiscal, which is higher than the rates offered on other small savings schemes. The board of trustees of the fund are yet to finalise the rate of return for the scheme for the current fiscal.

Union leaders, who attended the meeting, said Singh did not elaborate on his comments on the EPF.

In the past couple of years, the government has had to undertake a massive bailout exercise for UTI, following a crisis in its flagship scheme US-64.

In July 2001, the public sector mutual fund company had stopped payment of dividends to US-64 investors because of a large asset-liability mismatch.

Government sources have maintained that by maintaining a relatively high annual rate of interest, the EPF, which has a corpus of Rs 1,28,036 crore as on March 31, 2004, is in danger of landing in a similar crisis.

The finance ministry has pointed out that there is an urgent need to align its rate of interest with its earnings, which are largely from the Special Deposit Scheme, which carries a rate of interest of only 8 per cent.

Speaking to Business Standard after the meeting, All India Trade Union Congress leader Gurudas Dasgupta said they had been assured by Singh that he would have regular interactions with them every few months.

To the demands made by the nine trade unions to raise public sector investments and take steps to reduce unemployment in the forthcoming Budget, Singh said, "Something is being done".