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TUs to press for 9.5 pc PF rate — Inflation indexed formula to be proposed

Ambarish Mukherjee

New Delhi , July 10

THE labour leaders, who are members of the Central Board of Trustees (CBT) of the Employees' Provident Fund Organisation (EPFO), are getting ready to press for at least 9.5 per cent rate of interest on PF deposits for the current fiscal in its meeting scheduled for July 13, despite the Finance Minister's refusal to increase the interest rate on Special Deposit Scheme (SDS) from the existing 8 per cent.

According to Mr W.R. Varadarajan, a CBT member and Secretary of the Centre for Indian Trade Unions (CITU), "All the Leftist trade unions would meet on Monday evening to discuss the issue and would take a stand for Tuesday's CBT meeting." The CITU, which had earlier said that the Government should step in to meet the shortfall with Budgetary support under social security expenses, is now coming up with a new formula of inflation indexed real rate of return. "In many countries, the provident fund interest rate is related to the inflation. So, why we should not have a inflation indexed real rate of return to be actually payable for PF deposits," he said.

"Alternatively," Mr Varadarajan said that "let the RBI handle the entire fund. Already 80 per cent of EPFO funds, which is deposited in the SDS, are with the RBI and the EPFO fund manager, which is the State Bank of India (SBI), makes the investments for the remaining 20 per cent of the funds. When EPFO was paying 12 per cent RBI, which runs its own provident fund was paying 13.25 per cent to its employees. So RBI may replace SBI and take over the remaining 20 per cent also and manage it the way they do it for their employees. All the EPF, GPF, PPF may be merged also for this purpose."

According to Mr Sanjeeva Reddy, a CBT member and the President of the Indian National Trade Union Congress (INTUC), there are two possibilities. "First, we would like to go for a 8.25 per cent interest rate. As per annualised surplus accrued from interest, the EPFO can pay 8 per cent and with some backlog remaining from last year's funds another 0.25 per cent could be arranged taking the total to 8.25 per cent," he said.

The second alternative would be to segregate the members into two groups and have differential rates. "The ceiling for the EPFO is a monthly gross income of Rs 6,500. The EPF Act compulsorily covers those who earn up to Rs 6,500 a month, while for others it is only voluntary. And it is this below Rs 6,500 group that account for 80 per cent of the members. It is this group which needs protection. So they may be given a higher return, may be 9.5 per cent while for others it could be on the basis of EPFO's paying ability. What needs to be checked is whether such a move would lead to legal controversies or not," Mr Reddy said.

According to Mr A. Venkataram, Vice-President of the Bhartiya Mazdoor Sangh, it is possible to pay 12 per cent return on PF deposits and one way could be to dip into future interest earnings instead of dipping into the reserves.

"The EPFO's total corpus is Rs 56,450 crore while total investment is Rs 65,347 crore, which means that Rs 8,897 crore surplus have already been reinvested. In March 2004, we have made interest earning of Rs 5,953 crore. With Rs 5,953 crore only 8 per cent can be paid. The EPFO office tells us that interest earning on March 2005 would stand at Rs 5,919 crore. So if we dip into the future interest earnings of the organisation a higher rate is a clear possibility. And we would press for higher returns," he said.

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