M A I N   N E W S

EPF interest rate likely to remain untouched
Gaurav Choudhury
Tribune News Service

New Delhi, June 19
The government is likely to dig deep into its pockets to leave the rate of return on the Employees' Provident Fund accumulations untouched at 9.5 per cent.

A major reduction in the EPF rates in unlikely given the political sensitivity of the matter. Some major trade unions have actually demanded to raise the interest rate on small savings to about 12 per cent.

While raising the rate of interest on the EPF appears unlikely, sustaining the present rate of 9.5 per cent may not entirely turn out to be a fiscally prudent move given the current yield levels.

Prime Minister Manmohan Singh is expected to meet trade union leader early next week to discuss the matter besides other issues of labour reforms.

The investment returns of the EPF, according to projected estimates, was expected to yield Rs 5,844.31 core during the last fiscal year.

At last year's level of employment and EPF subscription, the estimated outgo to subscribers at the rate of 9 per cent worked out to be Rs 5,819.23 crore. This left a surplus of Rs 25.08 crore.

However, the erstwhile NDA government had made an announcement of raising the rate to 9.5 per cent - 0.5 per cent as a "golden jubilee" bonus. This had resulted in a net outgo of Rs 500 crore, which the EPFO had accounted for by taking recourse to its Contingency Fund.

The EPFO has a diversified investment portfolio with varying rates of return. Sources said as per the current portfolio, the average yield worked out to be 9.1 per cent, with securities of PSUs yielding the maximum return.

During the last fiscal year (2003-04), PSU securities have resulted in an estimated yield of Rs 1,400 crore.

Trade unions have been bargaining hard for raising the interest rate to 12 per cent on all small-savings schemes, including as the EPF, the PPF and the GPF. Leader of various worker unions have said that the increase in rate of interest, as suggested by them, should be subsidised by the Centre in the form of "expenditure on social security".

Incidentally, INTUC, a trade union affiliated to the Congress, it is learnt, did not raise the pitch for higher returns. It only demanded that the government should have a re-look at the portfolio of investments of the EPF funds.

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