To meet the gap of Rs 927 crore (Rs 9.27 billion) in the Employee Provident Fund, the All India Organisation of Employers has written a letter to the labour ministry to increase the interest for the special deposit scheme.
"More than 2,500 exempted funds EPF trusts are facing liquidity crunch and are unable to meet the shortfall due to higher interest rate of 9.5 per cent and lower interest earned by the funds," O P Lohia, president of AIOE and chairman Indo Rama said in a letter to Chandra Skekhar Rao, Minister of labour and employment.
"About 70 per cent of the exempted fund is invested in the Special Deposit Scheme which yields an interest of 8 per cent. The remaining 30 per cent funds invested in the securities and bonds also do not fetch a higher interest rate so the corporates have to meet the gap with their own funds," Lohia said.
He added that the finance ministry should also allow exempted trusts to pay interest to the members according to the yields.
At present, the exempted fund earns 8 per cent from SDS and around 8.7 per cent from the investment into securities. So the average interest earned by the fund is 8.3 per cent leading to a shortfall of 1.2 per cent.
The government is phasing out SDS and there is no fresh capital infusion and only the interest yield is re-invested.
In the new system, 15 per cent of the fund has to invested in state government securities and another 25 per cent in central government securities. Another 30 per cent will have to be invested in bonds of financial institution and remaining 30 per cent will have to be interested into any of the above schemes.
"The gap is expected to widen with government phasing out of SDS," and AIOE official said. The total corpus of the EPFO is Rs 1,28,000 crore (Rs 1,280 billion), which includes Rs 71,000 crore (Rs 710 billion) of the Employees Provident Fund, Rs 52,000 crore (Rs 520 billion) of the Employees Pension Fund and Rs 4,000 crore (Rs 40 billion) of the Employees Deposits Linked Insurance Scheme.
The CBT, headed by the labour minister, had recommended 9.5 per cent interest for 2002-2003 and 2003-04 and an 8.5 per cent interim dividend for 2004-2005.
Earlier, the interest income was projected at Rs 5,919.42 crore when the Central Board of Trustees recommended an 8.5 per cent interim interest rate in August 2004.
The liability on account of this rate would have been Rs 6,125.87 crore (Rs 61.26 billion), leaving a deficit of Rs 206 crore (Rs 2.06).
The deficit could have been met by the Rs 708 crore (Rs 7.08 billion) surplus generated during 2001-02 and 2002-3. But with the deficit growing to Rs 927.15 crore, the net deficit will now be around Rs 485 crore (Rs 4.85 billion).
The Central Board of Trustees of the EPFO is meeting on February 21 to decide on the interest rate.
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