Nearly 50 million subscribers to Employees’ Provident Fund Organisation (EPFO) are in for a surprise bonanza with the central board of trustees (CBT) today recommending the payment of 9.5 per cent interest on their corpus for 2010-11, compared with the 8.5 per cent being paid for the last five years and was widely expected to continue this year, too.
The 1 percentage point increase will result in an additional outgo of Rs 1,600 crore towards interest payment, Labour Minister Mallikarjun Kharge told reporters after a meeting of the trustees. The hike was possible after EPFO discovered a calculation mistake in the interest suspense account, which now stands at Rs 1,731 crore, instead of Rs 157 crore mentioned earlier.
The surplus money was discovered after analysing the EPF scheme’s accounts for the past few years. “We will not require any financial assistance from the finance ministry to pay this higher rate of interest. EPFO has its own funds,” Dipankar Mukherjee, secretary of the CPI(M)-affiliated CITU and member of the CBT, told Business Standard.
The CBT’s recommendation will now be forwarded to the finance ministry for final approval. Finance Minister Pranab Mukherjee is likely to approve the recommendations. EPFO, where trade union representatives are vocal, had stuck to the 8.5 per cent rate since 2005-06 and resorted to using funds lying in every possible fund.
The increase will mean that EPFO, which is mandatory for those in units employing more than ten people, is more attractive than some government-run small saving schemes such as Public Provident Fund. The move also comes at a time when banks are increasing interest rates to garner more deposits. State Bank of India, for instance, pays 7.75 per cent for deposits of 8-10 years — the highest under any slab.
EPFO has a corpus of over Rs 3 lakh crore, while the recognised provident funds managed by it have accumulated funds of Rs 2 lakh crore.
No investment in stocks
EPFO today virtually shot down the finance ministry’s proposal to invest funds lying with it in the stock market. The CBT said only if the government could assure returns and ensure there would be no erosion of the principal would EPFO permit investments in the stock market.
The finance ministry is unlikely to accept these conditions, EPFO functionaries told Business Standard. The finance ministry had allowed provident funds to invest up to 15 per cent of the corpus available with them in equity markets. EPFO has steadfastly opposed the move, prompting Finance Secretary Ashok Chawla to raise the issue with PC Chaturvedi, his counterpart in the labour ministry, ahead of today’s meeting.
“We had received a letter from the finance ministry asking for a portion of EPFO funds to be parked in the stock market. We have had huge opposition from CBT members, who oppose the idea of investing in stock markets,” Kharge told reporters.
“How can we allow the hard-earned money of the common man to face the risks of the stock market?” G Sanjeeva Reddy, president of the Congress-affiliated INTUC union, asked Business Standard.
The CBT also deferred a decision to adopt a new provident fund-cum-annuity scheme.
