New Delhi, June 21: The government will continue to pay 9 per cent on investments in the Employees Provident Fund (EPF). The half percentage point Golden Jubilee bonus announced last year may also continue for its 25 million members.
The rate of interest was officially lowered to 9 per cent last year from 9.5, but the trustees of the over Rs 1,12,000-crore fund had at the same time awarded a 0.5 per cent bonus.
Proponents of reform among Prime Minister Manmohan Singh’s aides want the bonus to be scrapped and the 9 per cent interest slashed to 8.5. But with trade unions demanding a fatter bonus and higher interest totalling 12 per cent, this option looks unrealistic.
Singh will meet union leaders on Wednesday to discuss all labour and economic issues. Although the EPF rate is being billed as the big-fight item, given the reality of dropping interest, even the union leaders are likely to settle for status quo.
Singh’s aides are urging him to at least try and persuade the unions to agree to withdrawal of the 0.5 per cent bonus. The Prime Minister’s bargaining strength is curtailed in the sense all unions are opposed to a cut.
The finance ministry has been asking EPF trustees to cut the interest but the fund has resisted such calls, saying it could afford to pay the higher rate.
In order to lower its own burden, the ministry last year slashed the return on the government’s special deposit scheme in which about 80 per cent of the provident fund money is invested.
Interest on the scheme was dropped to 8 per cent, 1.5 per cent lower than the EPF interest, and it was this decision that prompted the ministry to ask the fund trustees to lower the rate.
The remaining 20 per cent of the fund is invested in government and state-run corporation bonds and instruments which fetch a higher rate of interest.
But the EPF trustees had maintained that even after paying interest at 9 per cent, the fund would be able to save about Rs 25 crore from its earnings.
But the fact is that last year’s bonus came by dipping into a contingent liability fund of Rs 2,100 crore.