Decision on PF rate on Dec 7

The EPF board will meet on Wednesday to take a firm view on the interest rate for its 4 crore (40 million) subscribers during 2005-06, even as trade unions are demanding Prime Minister's intervention to retain 9.5 per cent.

The Central Board of Trustees of the country's biggest Employees Provident Fund Organisation, which met in November 21, failed to fix the rate of returns and decided to meet again on December 7, official sources said on Tuesday.

After the last meeting, Labour Minister and CBT chairman K Chandrasekhar Rao had promised to take up the matter with Prime Minister Manmohan Singh.

Trade Unions in a joint letter to the Labour Minister had demanded that the rate should not be reduced from 9.5 per cent.

Instead they demanded that interest on Special Deposit Scheme and government bonds should be raised to enable EPFO retain the interest rate at 9.5 per cent for 2005-06.

However, the Finance and Investment sub-committee of the EPFO had already recommended that interest rate should be cut to 8 per cent rate for this fiscal. The reduction in EPF rate was suggested as EPFO ended up with a deficit of Rs 716 crore (Rs 7.16 billion) in 2004-05 by offering a high 9.5 per cent interest.

The deficit was met through the reserve fund, which is now left with a corpus of Rs 250 crore (Rs 2.5 billion).

Had EPF offered close to 8.5 per cent last fiscal, the fund could have avoided a deficit. EPFO had a corpus of Rs 72,000 crore (Rs 720 billion) till March 2004, which grew to Rs 79,000 crore (Rs 790 billion) by March 2005.

The CBT board may also take up the issue of whether or not to allow EPF invest five per cent of its funds in equity and mutual funds taking into consideration the suggestions of an expert committee.