EPF
INTEREST RATE CUT TO 8.5%
The Central Board of Trustees (CBT) of the Employees Provident
Fund Organisation (EPFO) today declared an "interim rate
of interest" for FY05 at 8.5%, against expectations of
a higher interest rate in view of rising inflation.
The deficit of
Rs 206 crore that the EPFO would have to incur on account
of the payout would be "made good" through collections
for damages on non-payment of EPF by companies by the end
of the financial year, ie, end-March '05, labour minister
Sis Ram Ola told the press after a marathon meeting held for
over four hours here. At the end of the financial year, the
EPFO would assess the returns on its investments and with
a clearer picture in hand would pay out an additional rate
of interest depending on returns, Mr Ola said.
The decision, which
is not endorsed by the EPF and the Miscellaneous Provisions
Act, was taken despite vocal protests by all Left TUs and
by the BMS. The former is observing National Dissent Day on
August 20 and the latter on September 20. The INTUC, which
had given its nod to the "best rate of return that the
market will allow", will not participate. In fact, seven
out of the 35 members of the CBT registered their dissent
today on the question of "interim rate of interest".
Coming against
the 7.5% inflation, this was virtually a "negative rate
of interest" being paid out, TUs emphasised here, adding
that the '03-04 rate cut to 9% (excluding the bonus) itself
came in the face of a lower inflation rate that year.
The current assessment
in the EPFO is that if all expected recoveries are made in
'04-05, around Rs 300 crore would be accrued.
Amount garnered
in '03-04 through damages and interest penalties for non-payment
by companies under the EPF Act was Rs 215 crore. Against this,
both Mr Ola and the CPFC (Central Provident Fund Commissioner)
Ajay Singh asserted confidently that at the end of the year,
the interest rate could only go up and not come down.
Also, those retiring
from the scheme in the middle of the year would be paid an
interest of 8.5%. Ironically, those who retired in the middle
of '03-04 were paid out the CBT-declared 9% plus the 0.5%
golden jubilee bonus. However, the finance ministry has yet
to ratify the rate so that the labour ministry notifies it
officially. Today's CBT meeting authorised the labour ministry
to also write to the finance ministry to ratify the 9.5% interest
rate for '03-04 at the earliest.
Today's path-breaking
(or making!) decision on an interim interest rate is part
of a crucial larger exercise by the EPFO to start declaring
the rate of interest for subscribers, from now on, at the
end of the year instead of at the beginning as done up to
now. Accordingly, this suggestion was considered seriously
at today's CBT meeting.
"By the end
of the year, we will have a clearer picture of the returns
on investments and will be able to avoid all the friction
over a viable payout rate," a senior functionary stressed,
describing today's decision on an interim interest rate as
"rooted in the transitional phase" at the conclusion
of which the EPFO will decide to declare, formally from now
on, the interest rate at the end of the year.
Sources said that
the finance ministry representative at today's meeting had,
in fact, voiced the government's support for a 9% interest
rate for '02-03, as opposed to the 9.5% rate declared that
year. For '03-04, the CBT had declared 9% interest plus a
one-time 0.5% golden jubilee bonus.
Against this, the
finance ministry rooted today for an 8% interest rate. In
addition, the CBT also considered a key proposal on classifying
the Special Reserve fund resources as a financial asset, rather
than a liability as done now. This would, in real terms, allow
the CBT to take the funds into account and base the payout
rate for subscribers on this as well.
