No Left, right on EPF, rate stays at 8.5%

Not succumbing to pressure from the Left parties and the trade unions, the government has decided to stick to the interest rate of 8.5 per cent for the 40 million subscribers of the Employees Provident Fund Organisation (EPFO) during the current financial year.

The Left parties and the trade unions have been seeking to retain the interest rate at 9.5 per cent, as was the case during the last three years. "There is no question of paying more than 8.5 per cent. Even at this rate, the EPFO is scraping the bottom of the barrel for funds," said a government official.

The finance and investment committee of the EPFO had recommended an 8 per cent interest rate for the current financial year.

The EPFO's central board of trustees authorised Labour Minister K Chandrasekhar Rao to decide the interest rate. Rao announced that the rate be fixed at 8.5 per cent, which would result in a shortfall of Rs 365.89 crore.

The EPFO's income during the year was estimated at Rs 6,523 crore while the liability is pegged at Rs 6,889.04 crore.

Prime Minister Manmohan Singh discussed the matter with Rao and Finance Minister P Chidambaram on Tuesday. "I have had extensive consultations with the prime minister and the finance minister.

The proposal is before the department of expenditure. The notification will be issued soon," Rao told Business Standard.

Sources said the EPFO will have to once again tap its special reserve fund (SRF) to bridge the deficit. It is also banking on collecting arrears from defaulters to meet the shortfall. EPFO officials ruled out amending the law to tap the unclaimed deposits lying with it.

The SRF has a corpus of around Rs 240 crore, of which 50 per cent can be tapped. The EPFO also hopes to collect another Rs 30-40 crore in arrears from defaulters. Another option is to use a part of the administrative fund lying with it.

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HERE TO STAY

Interest rate of 8.5% will result in a shortfall of Rs 365.89 cr

The EPFO's income during the year was estimated at Rs 6,523 cr, while the liability is pegged at Rs 6,889.04 cr

The Fund will have to once again tap its Special Reserve Fund to bridge the deficit, even with 8.5%