New Delhi, March 12: There is really nowhere to run. After the cut in the small savings rate to 8 per cent in the budget and a lowering of the savings bank rate to 3.5 per cent later the same day, the government plans to put another sacred cow through the wringer.
This time it is the general provident fund (GPF) rate it plans to slash from 9 to 8 per cent from April 1.
The GPF is the fund in which Central government employees park their provident fund contributions. It has about 34 lakh members and the rate cut will obviously make government employees yelp in pain.
State government employees also place their PF contributions in separate GPFs which, too, are maintained by the accountants-general of the Centre. The state GPFs usually tie their interest rate to the Central rate and they, too, will in all probability follow suit.
The finance ministry is also planning to cut the interest rate on the special deposit scheme (SDS) by 1 per cent to 8 per cent. Much of the PF money is invested in the SDS as it guarantees an assured rate of return.
The GPF rate cut is a sign of a similar reduction under the employees provident fund (EPF) scheme where employees of private companies and state-owned corporations deposit their money every month with matching contributions by the employer.
The EPF has the largest pool of subscribers — about 2 crore. The gigantic fund parks nearly 80 per cent of its money in the SDS. A cut in the SDS rate will obviously exert pressure on the EPF to trim its own rate.
The finance ministry has been pushing hard for an EPF rate cut — 9 per cent now — but labour minister Sahib Singh Verma has been strenuously opposing the move.
Politically it is considered “unwise” to cut EPF rates in an election year and, consequently, the government had gone along with a rate higher than market rates.
But Singh may now have to capitulate. At their next meeting, which is scheduled next month, the board of trustees of the EPF may finally bite the bullet.
“The whole move to reduce rates is designed to reduce our (the government’s) interest payments which currently stand at 24 per cent of the total budget,” finance ministry officials said.