No Cuts In EPF Rates, Favour Economists

New Delhi, June 29 | Updated: Jul 1 2004, 04:44am hrs
The central board of trustees will hold a meeting with labour minister Sis Ram Ola on Wednesday to decide on the interest rate on employees provident fund (EPF) for the year 2004-05. Although trade unions have demanded a 3 per cent increase in interest rates, economists are of the view that it should be left untouched at 9.5 per cent.

Speaking to FE, Foundation for Public Economics & Policy Research director Mahesh Purohit said that the present rate should be retained. Considering that we have no concrete social security scheme, the interest rate should be left untouched. The decision on interest rates would be based more on political circumstances rather than economic ones. However, the government should refrain from being tempted to increase the rate, he added.

Dr Charan Wadhva, president, Centre for Policy Research, echoed the same sentiments. It is a political issue rather than a pure economic one and party pressures will come into play, he said, adding that the government must ensure than it is not increased.

Indian Council for Research on International Economic Relations (ICRIER) director Arvind Virmani said that it could lead to bankruptcy if the rate paid by the EPF is increased while the rate of investment remains unchanged.

The total corpus of the EPF is around Rs 1.28 lakh crore. This includes Rs 71,000 crore of employees provident fund, Rs 52,000 crore of employees pension fund and Rs 4,000 crore of employees deposit linked insurance scheme.

The interest rate on EPF deposits, which was 12 per cent since 1989-90, was reduced from July 2000 to 11 per cent.

It was further reduced to 9.5 per cent for 2001-02 and 2002-03. For 2003-04 it was again reduced to 9 per cent but the EPFO announced a golden jubilee bonus interest of 0.5 per cent, thus making the composite rate of interest at 9.5 per cent.