Print edition : September 10, 2004

Interview with M.K. Pandhe, general secretary, Centre of Indian Trade Unions.

The veteran trade union leader, Dr. M.K. Pandhe, is the general secretary of the Centre of Indian Trade Unions (CITU) and a member of the Polit Bureau of the Communist Party of India (Marxist). Born in Pune in 1925, he cut his teeth in the trade union movement in 1948 when he organised textile workers in Sholapur, Maharashtra. Ten years later he obtained his doctorate under the supervision of the illustrious economist, Dr. D.R. Gadgil, one of the chief architects of Indian planning. In a 35-minute telephonic interview to V. Sridhar, he explains the rationale of the Employees Provident Fund, highlighting how it cannot be compared to other savings instruments. He argues that the government has used the EPF as a "cheap source of funds" for financing its own expenditure. He calls for extending the scope of the EPF, particularly to the unorganised sections of the working class, so that the scheme fulfils its potential as a meaningful instrument for providing social security. He also asks the government to adopt a more democratic approach of determining, with the consent of workers, how and on what terms returns should be generated from the EPF corpus. Pandhe suggests that the Employees Provident Fund Organisation (EPFO), which administers the EPF, needs to be reformed to make this possible. Excerpts:

The government, particularly the Finance Ministry, has argued that it is not possible to maintain the interest rate of 9.5 per cent on workers' savings in the EPF because the market rate of interest has been falling. Why do you object to this line of reasoning?

Our main point is that the EPF is not like the small savings schemes. It is a social security scheme for workers. Workers' contributions in the EPF are at the disposal of the government for 30-40 years in many cases. This is the reason why the interest rate of the EPF scheme cannot be linked to the bank rate of interest. Workers are entitled to a higher rate because it is a long-term savings scheme. Although the EPF is a social security scheme, the government is not contributing anything to it. It is time the government made a contribution to this important social security measure.

How should the rate of interest on contributions be determined?

The problem is that the government is determining how the money in the EPF corpus should be invested. The Board of Trustees of the EPF does not have any say in the matter. This results in losses to workers. For instance, if workers are allowed to lend to public sector undertakings (PSUs) from this corpus, both the PSUs and the workers would benefit. Many PSUs now borrow from commercial banks at more than 12 per cent; they could access funds at cheaper cost from the EPFO and workers would also get higher returns on their savings. Instead of allowing this, the government is only interested in using workers' savings as a cheap source of funds for its own use.

How is the EPF different from other savings schemes?

The EPF came into existence recognising the notion that when a worker retires he/she should be rehabilitated properly. At the present rate of interest this would not be possible. My point is that the government should subsidise the scheme because at present it is not participating in the most important social security scheme that is available to workers. The interest on the Special Deposit Scheme (SDS) should be higher. The bulk of the investments in the EPF are now in government securities that yield low returns. This is the main reason for the current situation in which the EPF is in.

Can you give a brief account of how the EPF originated? What was the role of the trade union movement in its implementation?

The Provident Fund Act was passed in 1952. Since then, over a period of time the contribution from workers has been raised from 6 per cent to the current level of 12 per cent. This increase was made by the government keeping in mind the need for an adequate savings corpus for the worker at the time of retirement. In fact, at the last Indian Labour Conference it was decided unanimously to increase this to 13 per cent. The government has diverted a part of the funds in the EPF to the Employees Pension Scheme. The interest on pension funds will also fall because of the reduction of the interest rate. There is a very real fear among workers that their pensions will also be seriously eroded. In fact, the government, which should review pensions periodically, has postponed the last four rounds of revision. The last revision was done six or seven years ago. We would like to devise a better pension scheme because under the current scheme they pay more and get less. In 1995, when the Family Pension Scheme, which was started in 1971, was merged with the EPS, it had a balance of Rs.14,000 crores. This balance, in simple terms, was a surplus that arose out of contributions made by workers over nearly 25 years. Simply put, workers got less than what they paid to the government. The same thing is likely to happen with the EPS.

What has been the role of the trade union movement in implementing the EPF and other such worker-welfare schemes?

The trade union movement has always been demanding that more and more workers should be covered by the EPF scheme. It is the government that is hesitant to extend the coverage of the scheme. For instance, the West Bengal government has implemented a scheme to extend the EPF to workers in the unorganised sector. This scheme is working well. We are demanding that the EPF should be extended to the unorganised sector so that those sections of workers also are able to get retirement benefits. The earlier versions of the provident fund were applicable for only certain categories of workers, for instance government servants and teachers. In fact, there was no legislation to back the scheme so that it would apply to workers employed in private establishments. The trade union movement played a major role in extending this to the private sector as well as increasing the contributions of workers so that retirement benefits for workers would be more substantive. The trade unions stressed issues related to the PF scheme continuously - increase in the contributions of workers, increase in the interest rate applicable on their savings made in the PF, and increase in the coverage of the scheme so that more and more sections of the workforce could be brought into the ambit of the EPF.

Who gains from the lower rates on the EPF at a time when inflation seems to be gathering momentum?

A review of the budgetary figures of the government will show that during the period of National Democratic Alliance rule the government lost revenues to the tune of Rs.50,000 crores because of tax cuts, subsidies and other benefits given to industries. When P. Chidambaram presented the Budget recently, he estimated that he expected the government to earn Rs.7,000 crores from the Securities Transaction Tax. Since then he has given concessions amounting to Rs.6,000 crores, while diluting the provisions of the tax. In contrast, the cost to the government in order to finance the gap in the EPF would not have been more Rs.3,000 crores. While the Finance Minister is refusing to give workers this amount, he is offering concessions to industry and share market dealers even before the Budget is finalised. We say: Let the EPF be a universal scheme so that every worker is covered. Then the claim that it is only meant for the "elite" among workers will no longer have a leg to stand on.

The EPFO is only able to invest in certain categories of financial instruments - government securities, public sector bonds and so on. Is this a restraint on the EPF's ability to generate returns on its corpus? What are the alternatives that will enable higher but safer returns on investments?

The government has decided how the money is to be invested. Our main objection to the prevailing situation is that while the government is itself refusing to give higher returns, it is also not allowing the EPFO to invest the corpus in other instruments that can generate higher returns. The EPFO has no autonomy at all. The government is deciding everything. The government controls everything pertaining to the EPFO without contributing anything to it. The democratisation of the EPFO is urgently needed. Why is the government - the Finance Ministry in particular - determining the rate of return? Why cannot the workers, represented by their nominees in the Board of Trustees in the EPFO, determine how the money is invested profitably? The Board does not currently have the powers to do this. The government lays down the guidelines. The bulk of the money is being invested in government securities.

There is also a demand, by players in the capital markets, that EPF funds be invested in the stock markets if workers want higher returns...

This has been opposed by all trade unions. But we are in favour of investing EPF money in well-run PSUs - the oil industry, Steel Authority of India Ltd [SAIL], Bharat Heavy Electricals Ltd and other such companies. They borrow at 12-14 per cent from banks; this can be substituted by EPF funds, which will be beneficial to workers as well as these publicly owned companies. In fact, we know that many of them are willing to enter into such an arrangement. In Europe, pension funds were invested in the stock market. But when the markets collapsed, the pension funds were affected very badly. We do not want workers here to be affected in a similar manner by EPF money being diverted to the stock market. We asked the government to allow SAIL workers to deposit their pension funds with the SAIL management so that the company could deploy it. But the government did not allow this. The government is dictating terms at every stage.

There are large-scale defaults, especially by private managements. How has this affected the viability of the EPF?

In the non-exempted category of establishments, defaults by managements amount to more than Rs.1,000 crores. When a company falls sick the first thing to be affected is the PF. Although the law provides for the arrest of PF defaulters, the government has not taken strong action against owners of establishments that default in PF deposits. In fact, many establishments are not only not making their contribution to the workers' PF but not even refunding the money that they have collected from workers as their own contribution. We demand that if employers default, those responsible for that should be imprisoned. As a result of the government's lenience there are companies whose defaults amount to more than Rs.1 crore.

Are you agreeable to EPF returns being indexed to inflation in some manner?

Inflation, measured in terms of wholesale prices, is currently at 7.61 per cent. With a return of 8.5 per cent on EPF contributions the real rate of return is less than 1 per cent. The value of workers' investments, made over their working lifetime, is not being maintained at a decent rate. There should be a suitable mechanism by which returns are determined after taking into account the rate of inflation. The government should constitute a bipartite committee on the issue and a way can be found to address the issue. Our experience with retired workers shows that PF money does not last very long. Most of them deposit what they get after retirement in fixed deposits with banks and they get very poor returns on the investment, way below the rate of inflation. Most of them face serious problems in their old age. This is because of the government aligning the return of EPF funds to the prevailing interest rate. The government has only used the money in the EPF as a cheap source of funding its own expenditure. The government has given Rs.25,000 crores of subsidised credit to the textile industry. In the last three years about Rs.1.53 lakh crores is outstanding as tax arrears - mainly from corporates and wealthy individuals. The government, while subsidising the rich and treating tax dodgers with lenience, is unwilling to spend a fraction of these amounts on workers' welfare.

There is a view in some sections that organised sections of the working class form an elite and therefore are not to be subsidised by the government... .

We have always been saying that the PF scheme should be made universal in scope and scale. Let the unorganised sector be covered by the PF scheme. Today, even contract workers, beedi workers and workers in small-scale units are participating in the EPF scheme. It is therefore totally incorrect to say that only well-organised workers are participating in the EPF. The Provident Fund Act should also cover the unorganised sector. It is the government which is opposing this. Now establishments with at least 10 employees are covered by the Act. This can be reduced to five so that more workers in the unorganised sector can be brought into the scheme. The government can amend the law in a phased manner so that the scope of the Act is enlarged and more workers benefit from the PF scheme. Our objective should be that any person who is working should be covered by the PF scheme. Workers who shift at short intervals because of the nature of their work and conditions of tenure can be given passbooks so that irrespective of where they are employed, they will continue to be covered by the PF scheme.

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