Three months after Finance Minister P Chidambaram announced 9.5 per cent interest rate for the Employees Provident Fund for 2002 to 2005, the North Block has asked the labour ministry to expedite its recommendation on the rate payable for 2004-05.
Significantly, a finance ministry letter to the labour ministry did not mention the 9.5 per cent interest rate, which Chidambaram had announced for 2002-03, 2003-04 and 2004-05.
"We received a letter last week seeking the Central Board of Trustees' recommendations for 2004-05," said a labour ministry official.
The Employees Provident Fund Organisation had earlier estimated that a 9.5 per cent interest payout to its over-four crore subscribers could result in a deficit of Rs 927.15 crore (Rs 9.27 billion) for the organisation.
"Recovery of certain dues has helped reduce the deficit to Rs 716 crore (Rs 7.16 billion) now," said the official.
The tricky issue of who will fund the Rs 716-crore deficit came up for discussion today at a meeting convened by Prime Minister Manmohan Singh and attended by Chidambaram and Labour Minister K Chandrashekhar Rao.
Rao had been upset for being kept out of the February meeting where Singh and Chidambaram decided on the 9.5 per cent interest rate for the three years.
Officials said no solution emerged from Wednesday's meeting but added that there would be more rounds of discussions among the Prime Minister's Office, the labour ministry and the finance ministry before Rao convened a meeting of the EPFO trustees.
The first step towards the interest rate becoming effective is a decision to be taken by the CBT, which will then be conveyed to the labour ministry. The ministry will seek the approval of the finance ministry and then issue a notification.
The CBT had recommended 9.5 per cent interest for 2002-03 and a composite interest rate of 9.5 per cent (rate of interest @ 9 per cent and one-time golden jubilee bonus interest of 0.5 per cent) for 2003-04.
This was, however, not ratified by the finance ministry on the grounds that the interest income of EPFO did not merit the high rate but following Chidambaram's announcement of his ministry agreeing to ratify the rates for the two years, the labour ministry accepted to come out with a notification soon.
The CBT had, in August 2004, recommended an interim rate of interest of 8.5 per cent on for 2004-05, which was to be reviewed at the year-end when the actual earnings on the EPF investments would be known.
The interest income at that time was projected at Rs 5,919.42 crore (Rs 59.19 billion). At 8.5 per cent, the interest payment liability was worked out as Rs 6,125.87 crore (Rs 61.26 billion) translating into a deficit of Rs 206 crore (Rs 2.06 billion).
It was felt that liability would increase to Rs 6,846.57 crore (Rs 68.47 billion) following the finance minister's announcement of a 9.5 per cent rate of interest for 2004-05, leading to a deficit to Rs 927.15 crore.
