Improvident states

Praveen Chandran
15 November 2002

Mumbai: Lakhs of employees may find themselves in the lurch soon, as Employees’ Provident Fund (EPF) trusts in India face debt defaults by state governments and other government organisations.

The EPF, the Coal Mines EPF and the Seamen’s EPF have Rs 7,000 crore in state guaranteed bonds, which are due to mature this fiscal. However, cash-strapped state governments are likely to ask for a rollover on these payments.

Around 90 per cent of the entire PF amount of over Rs 45,000 crore is invested in government guaranteed bonds and paper, and the remaining 10 per cent in stocks. About 45 lakh employees are covered under the tax-exempt EPF trusts.

Apart from this, over 3,000 companies manage PFs independently, handling investments to the tune of Rs 35,000 crore. Of this, an estimated Rs 8,000 crore has been invested in state government guarantee bonds. As per investment norms, up to 35 per cent of the PF corpus can be invested in these papers.

Force Reckon V, a Mumbai-based pressure group representing companies and debt brokers, has informed the central labour ministry about the alarming situation. According to Force Reckon officials, seven states, including Maharashtra, Gujarat and Kerala, have defaulted on interest payments; more are likely to follow suit.

Fearful scene
Maharashtra’s internal debt has reportedly multiplied five times to Rs 27,105 crore in the last two years. A Reserve Bank of India study says the aggregate outstanding guarantees for 17 major states in India have risen from Rs 40,318 crore in 1992 to Rs 1,05,739 crore in the year 2000.