The Hindu : Meeting today on PF interest rate

Online edition of India's National Newspaper
Friday, Apr 12, 2002

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National

Meeting today on PF interest rate

By P.K. Bhardwaj

NEW DELHI APRIL 11. A special meeting of the Central Board of Trustees (CBT) of the Employees Provident Fund (EPF) has been convened to take a final view tomorrow on the rate of interest to be recommended to the Government for 2002-03 on money belonging to the members in the PF account.

Sliding rate of interest has become an emotive issue with the working and the middle classes and it has cost the National Democratic Alliance dearly in terms of its declining political graph. Indications are that the EPF Board of Trustees would take a sympathetic view with the intention of stemming further isolation of the ruling combine from the masses.

But the industry and trade sector may not find it palatable since they have been insisting on further slashing of interest rates to enable them to compete in the global market. However, the possibility of the Government sticking to its guns and slashing the rate of interest is also not being ruled out.

The initiative to call an emergency meeting of the board came from the Union Labour Minister, Sharad Yadav, who is also chairman of the Board of Trustees. Though no explanation is available for hurriedly summoning the meeting, it appears that since the debate on the Budget for 2002-03 is to be resumed in Parliament when it reconvenes on April 15, the Government would need to take a view in the matter. A modified rate of interest may finally be proposed for adoption at the time of approval of the Budget.

Incidentally, the Committee on Subordinate Legislation, Rajya Sabha, in its 134th report, had insisted that in the face of differing views on the rate of interest, the final view of the Centre must come before the CBT to apprise it of the factors responsible for the Central Government's decision. On the ticklish issue of interest rate, such differences exist between CBT and the Government. The former favours higher returns for PF members whereas the Government is keen on introducing second generation reforms which envisage slashing of interest rates.

Tomorrow's crucial meeting would consider the reasons given by the Government, justifying the rate of interest on EPF proposed by the Finance Minister, Yashwant Sinha. However it is pertinent that the Board, during its last meeting held on January 22, while deferring a final view on the subject, recommended as an interim measure the continuation of 9.5 per cent as the rate of interest for EPF subscribers. Importantly, since then the Finance Ministry has reduced the rate of interest on GPF, PPF etc. by 50 basis points as per the last budget speech of Mr. Sinha to 9 per cent.

However, at that time it was decided that CBT would again review in March the overall situation regarding interest earnings by the Fund after the exact financial position in relation to interest earnings became known, following the presentation of the Union Budget.

According to available projections, the interest earnings on EPF would be Rs.5,745.83 crores while the liability towards payment of interest to EPF members at the rate of 9 per cent during the current financial year would be Rs.5,334.34 crores. There would thus be a marginally small surplus of about Rs.411.9 crores.

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