| Labour minister Oscar Fernandes in New Delhi on Monday. (PTI)
New Delhi, July 23: The interest rate on the employees’ provident fund (EPF) remains unchanged at 8.5 per cent for 2006-07.
This was decided today at a meeting of the board of trustees of the employees’ provident fund organisation, which manages post-retirement money of nearly four crore Indians.
The government had earlier proposed to bring down the interest rate to 8 per cent, while the Left parties demanded an increase of 1 per cent to compete with state-run banks which were paying 9-9.5 per cent on long-term savings.
“We have decided to recommend to the government an interest rate of 8.5 per cent for 2006-07,” labour minister Oscar Fernandes said after a meeting of the board which fixes the EPF rate.
Fernandes said total interest payments would be Rs 7,823 crore which was lower than the earnings from the EPF in the last fiscal.
An 8.5 per cent interest rate will put a burden of Rs 450 crore on the EPF. However, sources said the deficit could be offset by a surplus of Rs 590 crore in the interest suspense account, contingency reserve and special reserve fund.
According to Fernandes, the provident fund body is finding it difficult to pay 8.5 per cent, since most of its corpus is invested in a federal special deposit scheme that offers just 8 per cent return.
He said the provident fund body was awaiting an approval from the trustees to invest 5 per cent in equities.
The employees’ provident fund organisation was also looking at investments that could fetch higher returns.
Fernandes, however, said he expected the provident fund body to earn more following the tightening of the monetary policy of the RBI which had pushed up interest rates. “As bank deposit rates have gone up, we may see a change in earnings in 2007-08.”
The board will submit its recommendations to the finance ministry, which is expected to notify the rate shortly. Fernandes said the employees’ provident fund organisation had set up a sub-committee to assess its finances.
The committee said that even after paying 8.5 per cent interest rate, the fund would have a surplus of Rs 83 crore in the suspense account. The fund has a corpus of Rs 94,000 crore, including pension funds.