North Block against subsidy to EPFO

The finance ministry appears to have ruled out subsidising Employees Provident Fund Organisation to bridge the Rs 927 crore deficit in its payment of 9.5 per cent interest to about 40 million subscribers.

"They (EPFO) have to find its own ways of bridging the deficit. There is unlikely to be any subsidy for the fund," an informed source told PTI here today.

Although the Centre has announced a 9.5 per cent interest to the EPFO subscribers in 2004-05, the finance ministry is yet to ratify the proposal and the rates for the previous two years.

Though the finance ministry sources claimed that no formal proposal had been received from the labour ministry to ratify the rates, sources in the central board of trustees of EPFO (CBT) said the request has been sent.

The CBT, headed by Labour Minister K Chandrasekhar Rao, had estimated the gap between what it earns on investments and higher 9.5 per cent interest to be paid to subscribers during 2004-05 to be Rs 927 crore .

Rao, who had met Prime Minister Manmohan Singh in this regard, maintains that the EPFO would strive to bridge the shortfall on its own and, if it was not possible, then the finance ministry would have to pitch in.

The CBT had earlier recommended an "interim" rate of 8.5 per cent to EPF subscribers, which was subsequently raised to 9.5 per cent after trade unions, mainly belonging to the Left parties insisted on higher rates.

Indications are that the CBT will meet in May since the members expect some announcements from Finance Minister P Chidambaram in Parliament soon.

The CBT meeting scheduled in March was called off at the last moment citing technical reasons, but sources said it was because no announcement had been forthcoming from the finance minister.

A finance and investment sub-committee of EPFO is learnt to have recommended 8 per cent returns for 2005-06, because it feels any rates higher than that will drastically "bloat" the shortfall.

In view of the dwindling returns on its investment, especially after the finance ministry barred reinvestments in the special deposit schemes (SDS), the EPFO had appointed a global consultant, Mercer to suggest ways to improve returns. The consultant has been given four months' time to submit its report.

In the meanwhile, the finance ministry had allowed non-state PFs to invest up to 5 per cent of their assets in equities and a similar proportion in equity-related mutual funds, which gave rise to fears that the EPFO may also invest in these instruments.

However, Rao has repeatedly ruled out investments in equity, saying that the EPFO cannot afford risks by putting the hard-earned savings of the workers into stock market. Alternatively, Rao has suggested allowing re-investments in SDS, in which the EPFO parks 80 per cent of its funds.

Trade unions have also pitched for re-investments in SDS and at higher interest rates.

Rao had also mooted investments in the high interest yielding postal deposits and NSCs. All these proposals are now being looked into by the global consultant.