Financial Daily from THE HINDU group of publications
Wednesday, Jan 23, 2002
Industry & Economy - Small Savings
Government - Policy
Status quo in EPF rate for now -- Linking to Special Deposit Scheme mooted
NEW DELHI, Jan. 22
THE Central Board of Trustees (CBT) of the Employees Provident Fund Organisation (EPFO) has recommended that the interest payable on EPF deposits for 2002-03 be retained at the existing 9.5 per cent.
"This is an interim recommendation, subject to there being no change in the interest rates on small savings and the Special Deposit Scheme (SDS). In case these rates are reduced further in the forthcoming Union Budget, the CBT will review the situation again in March and make a final recommendation to the Finance Ministry. The latter will then issue the notification on the interest to be paid to subscribers," a Labour Ministry official stated.
The official said that if the EPF subscribers were to be credited interest on their monthly balances at the existing 9.5 per cent rate, it would entail payments of Rs 5,630.69 crore. On the other hand, interest earnings are projected at Rs 5,978.5 crore, which means that even after members are serviced at 9.5 per cent, the EPF would still be left with a comfortable surplus of Rs 347.81 crore.
"But our earning projections are based on the assumption that there will be no further reduction in the interest rate on the SDS in the Budget. Given that almost 80 per cent of the EPF corpus is parked in the SDS account of the Government of India, even a reduction in this rate by one per cent would reduce the EPF's earnings by an estimated Rs 476.84 crore. That would, then, entail a deficit of nearly Rs 130 crore," the official noted.
He added that the only way members could be serviced at 9.5 per cent even after a further SDS rate cut would be by way of dipping into the EPF's reserves on its interest suspense account. In other words, the final interest to be credited to EPF members' accounts would be known only after the Union Budget is presented on February 28, when the Finance Minister gives an indication of what would be interest rate on the SDS and various small savings instruments.
Reflecting the same view at the 156th meeting of the CBT of the EPFO here today, the Union Labour Minister, Mr Sharad Yadav, said that the huge parking of EPF monies in the SDS account with a fixed rate of interest would be a "controlling point in our decision making for the declaration of interest."
As on December 31, 2001, the total EPF corpus of unexempted establishments stood at Rs 59,938.63 crore, of which Rs 47,683.74 crore (79.55 per cent) was invested in the SDS earning 9.5 per cent.
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