47 million to gain from 1-per cent hike in PF interest

Over 47 million employees working in the organised sector in India will benefit from a one per cent hike in interest rate on their provident deposits in financial year 2010-11, after the finance ministry approved a proposal to raise the rate to 9.5 per cent.

The Employees' Provident Fund Organisation (EPFO), which is under the union labour ministry, has since 2005-06 been paying interest of 8.5 per cent to the nearly 50 million members who contribute a part of their wages every month as provident fund.

The central board of trustees of the EPFO includes top bureaucrats, representatives of employers and union leaders representing employees. Politicians and union leaders have been demanding a hike in interest rates for several years, though the finance ministry has refused to fund the additional amount.

According to the ministry, the fund should pay interest to employees on the basis of the surplus generated by it; the EPFO should not ask the government for funds to pay higher interests, the ministry argued. But the labour ministry and the central trust has been pushing for a hike in interest rate. They, however, refused to accept the finance ministry's suggestion of investing a part of the Rs.5 lakh-crore corpus in the stock markets.

Last September, an EPFO official discovered a surplus of Rs.1,731 crore in the books of accounts and on the basis of that, the labour ministry wanted to hike the rate. However, the finance ministry was suspicious about the 'discovery' of the surplus amount, and asked the Comptroller and Auditor General (CAG) to do a quick audit.

The CAG, however, found that as on 31 March 2010, a majority of the accounts had not been updated, so it was not in a position to verify claims about a surplus. The EPFO in January decided to go ahead with the 9.5 per cent interest rate, pointing out that it would not seek additional government funding. Labour minister Mallikarjun Kharge has also been urging the finance ministry to give its approval for the hike in rate.

''We are happy to have been vindicated,'' remarked Samirendra Chatterjee, central provident fund commissioner, after the finance ministry gave its approval. ''It is good that there and checks and balances in the system to ensure all calculations are correct.''