While the fate of the pension reform Bill hangs in a delicate parliamentary balance, there seems to be much movement in the Employees’ Provident Fund Organisation (EPFO). The government had, recently, ended the monopoly of SBI on managing the EPFO’s assets worth Rs 2.4 lakh crore with annual accretions estimated at between Rs 27,000 crore and Rs 30,000 crore. In fact, the government has already announced a list of fund managers who will now manage these assets—ironically enough, none of the funds will actually be transferred to the newly appointed managers; they will act more like investment advisors. They will also have to stick to safer, government-backed securities which will ensure that any additional gains will be limited. The deposit holders in the EPFO will have no right to choose their preferred fund manager. Surely, the EPFO should have gone further in its reform effort by offering this option to the final consumer.
Though the move to appoint multiple fund managers is welcome—competition is definitely good for those who hold EPFO deposits—the process by which the selection was done leaves much to be desired. Two bidders—HDFC AMC and Birla Sun Life AMC—were disqualified because their financial bid was zero—they offered not to charge EPFO for managing the funds, but would have gained economies of scale courtesy the extra funds they would have in their accounts. There are suggestions that the government could have asked the two bidders to charge a nominal price in order to be considered before disqualifying them on technical grounds. There is a precedent for this recourse from earlier disinvestment processes. The process also invited controversy by a last minute decision to add a fourth fund manager to the recommended list of three by the EPFO’s finance & investment committee. This enabled Reliance Capital to become a fund manager. There is also controversy surrounding the fact that the fund manager with the lowest financial bid will get the largest allocation of funds, even though it ranks lowest on the technical bid. In effect, this means that the fund rated lowest on its technical (fund managing) ability will manage the most money. Clearly, the government needs to do much to improve its processes, even as it proceeds with reform in the right direction.