Just a couple of years ago, faced with an insistent demand from trade union leaders to retain an annual 9% rate of interest on deposits of workers in the Employees? Provident Fund Organisation (EPFO), Prime Minister Manmohan Singh had advised them not to create a financial crisis of the sort that hit the erstwhile Unit Trust of India. Labour leaders, true to character, were adamant that the rate of interest was the key issue that EPFO had to grapple with. But as an FE report published on Tuesday amply demonstrates, their zeal only camouflaged the abysmal state of the organisation that safeguards the pension savings of India?s vast organised sector workforce. The shape of India?s largest provident fund organisation is symptomatic of the malaise in the country?s pension system. Be that as it may, the Bill to reform the pension system will lapse with this Lok Sabha, leaving the critical challenge of streamlining the organisation for another day and another time. This would be tragic. Of the 40 million account holders, more than half will draw far less pension than they are entitled to, since of the 4.7 lakh firms registered with the EPFO, around two-thirds do not contribute to their employees? PF savings. The default figures, in any case, do not include the thousands of moribund firms that have stopped complying altogether.
Just sample the figures. Assessed defaults have risen by 107%?from Rs 453 crore in 2001-02 to Rs 939 crore in 2006-07. It would take about 300 man-years to bring all the guilty firms to book. The smartcard system has been a stillborn. The EPFO still operates on antiquated software and uses the outdated single-entry book-keeping system, which makes it vulnerable to fraud. For all that, the organisation manages a corpus of over Rs 1.55 lakh crore. While the predictable response from the government would be some new combination of assurances, threats and action, the simple market logic of releasing Indian workers from the yoke of a compulsory pension system, so that they may make their own pension plan choices, will probably not be countenanced at all. Alas, there will be another big divide in India?between those in the new pension scheme, who are already getting over 8% returns, and their counterparts who remain unfairly dependent on state largesse.