New Delhi, Nov. 8: Ahead of the meeting of trustees on Thursday, trade unions fear the interest rate on employees’ provident fund will be cut to 8.5 per cent while the finance ministry is afraid its recommendation of 8.25 per cent will not be accepted.
No meeting of the board of trustees of the EPF scheme to consider the interest rate has been smooth lately. This time the proposal for a sharp cut could be put on the table.
The interest rate now is 9.5 per cent ' 8.5 for the financial year 2005-06 will mean a cut of as much as a percentage point.
“We have information the government is planning to slash the interest rate on the grounds that it cannot sustain the 9.5 per cent rate,” said Aituc general secretary Gurudas Das Gupta.
The finance ministry’s recommendation to the board is to slash it to 8.25 per cent.
“The provident fund has to learn to live within its means... there cannot be a continuation of book-dressing or else the fund will turn into another UTI where the principal itself got eroded,” said top ministry officials who have been consulted on the issue.
But the officials added that the decision on whether to bring down rates to 8.25 or 8.5 per cent would be “purely political”, which means the Left would have to first agree to it.
If the Left continued to strongly oppose the reduction, the government could stall for time. “But ultimately it will be have to be done... when may, however, be a ticklish question,” the officials said.
The unions are only too aware of the possibility of a cut. “The move to lower the interest rate is already afoot. It may not be announced at the meeting on Thursday. But the decision is expected,” Das Gupta said.
Under the Vajpayee government itself, it had been decided to cut the rate to 8.5 per cent, but the Left and the unions used their leverage with the succeeding Congress-led administration to stop it.
After a prolonged tug-of-war with the Left, Prime Minister Manmohan Singh yielded to the demand to hold it at 9.5 per cent. The trustees reluctantly fell in line.
“The board has no money to sustain a 9.5 per cent rate. It managed to deposit the interest money last year by dipping into the special reserve fund,” said a labour ministry official.
The decision to pay 9.5 per cent interest left the fund with a Rs 714-crore deficit that had to be met out of the Rs 936-crore special reserve fund.
“There is now no money in this fund. It has a little over Rs 220 crore,” said the official.