The reduction in the EPF rate of interest by 1.25 per cent has come as a shock to non-government employees and trade unions.
The unilateral cut in the Employees' Provident Fund rate of interest by 1.25 per cent, from 9.5 per cent to 8.25 per cent, for 2011-12 through a notification of the Union Finance Ministry has justifiably raised the hackles of trade unions. The widespread resentment it has generated among employees has meant nationwide protests. The decision, taken two days before the Union Budget was presented in Parliament, was merely conveyed to the Central Board of Trustees (CBT) of the Employees' Provident Fund Organisation (EPFO), the organisation that takes decisions regarding the rate of return and related matters. The EPFO is one of the largest provident fund organisations in the world in terms of volume of funds and membership.
The issue, fraught with implications for the retirement savings of over 4.7 crore employees, did not receive the attention it deserved, overshadowed as it was by other issues that dominated Parliament, including the Railway Budget and then the Union Budget. It was another matter that members of Parliament, including those from the Left parties, tried hard to force a discussion. As soon as the Union Finance Minister rose to present the Budget, opposition members such as Basudeb Acharia of the Communist Party of India (Marxist), and Gurudas Dasgupta of the Communist Party of India demanded a rollback of the decision. Leaders of the Bharatiya Janata Party such as Gopinath Munde and Murli Manohar Joshi vented their strong opposition to the decision. Dasgupta is a member of the CBT.
The unanimous demand of representatives of the central trade unions the Indian National Trade Union Congress (INTUC), the Bharatiya Mazdoor Sangh, the Centre of Indian Trade Unions (CITU), the Hind Mazdoor Sabha and the United Trade Union Congress (UTUC) in the CBT to maintain the interest rate at 9.5 per cent was rejected by the Finance Ministry. What was shocking was the silence of the Union Labour Ministry, under which the EPFO functions, on the matter. Members of Parliament from the Left parties, the All India Anna Dravida Munnetra Kazhagam, the Asom Gana Parishad and others wrote to the Prime Minister expressing their shock at the cut.
The CBT is a tripartite body, with representatives of employers, employees (through trade unions), State governments and the Central government. Provident fund contributions and the interest earned on them and maintained by the EPFO are social security funds.
At a time when the interest rate on bank deposits is above 9 per cent, Public Provident Fund (PPF) 8.6 per cent and National Savings Certificate (NSC) 8.7 per cent, the cut in EPF interest rates is bound to hurt a large number of people. The argument that the reversal was necessary because of a deficit is not being bought by anyone. The EPFO provides comprehensive social security to employees and their family members, according to its website. It is a financial institution that publicly manages old-age income security. Unions have warned of widespread industrial unrest if the government notification is not revoked.
In a letter to Union Minister of Labour and Employment Mallikarjun Kharge, who is the chairman of the CBT, former Rajya Sabha member Dipankar Mukherjee, a member of the CBT, pointed out that the rate of interest on General Provident Fund (GPF), the retirement savings for government employees, had been rightly hiked from 8 per cent to 8.6 per cent through a notification of the Finance Ministry on March 19, 2012, while the rate of EPF had been unilaterally slashed.
At the last meeting of the CBT, on December 23, 2011, union representatives had urged that EPFO interest rates be maintained at 9.5 per cent. They had also urged the government to hike the rate of interest on the Special Deposit Scheme (SDS) in order to facilitate a higher rate of interest on the EPF. On March 13, the Finance Ministry notified the increased SDS interest rate. The rates of returns on the PPF and the NSC too were hiked to 8.6 and 8.7 per cent respectively. This came into effect from December 2011 since the government had declared the intent to hike the rates in November.
It is unprecedented for the EPF interest rate to be pegged at a lower level than the GPF, said Mukherjee. That such a thing has happened is an embarrassment for the chairman of the CBT, he added. Mukherjee also pointed out that it was irrational to hike the SDS interest rate from 8 per cent to 8.6 per cent where a large proportion of EPF was invested. For the first time since 2003, the Finance Ministry had hiked the interest rate on GPF. An estimated 1.5 crore government employees deposit a portion of their salaries in the GPF, so the hike has definitely benefited them. This, observers point out, will have the effect of creating an anomaly in the provident fund savings of government and non-government employees.
The BMS, which is the largest trade union in the country and which has of late joined the INTUC, the CITU and the All India Trade Union Congress (AITUC) in organising nationwide strikes, has warned of an industrial disquiet on account of the Finance Ministry's decision.
In a letter to Kharge on March 28, the general secretary of the BMS, Baij Nath Rai, expressed his strong protest against the cut. He reminded the Labour Minister that it had been decided at the last meeting of the CBT to place the opinions of CBT members before the Finance Ministry and to revert the issue to the CBT for an appropriate decision. He also urged Kharge to take up the issue with the Prime Minister.
There is no doubt that in the prevailing interest rate environment, 8.25 per cent is below par. Bank deposits earn over 9 per cent. The government's argument is that the interest rate of 9.5 per cent was earlier fixed on the basis of a surplus of some Rs.1,750 crore with the EPFO, which did not apparently exist. Based on a presumption of losses, the government cannot unilaterally decide to effect a cut. Rather, it should be increased. It was revised last year due to inflation. As inflationary conditions persisted, trade unions demanded retention of the rate. Clearly, the Labour Ministry is afraid of encroaching into the Finance Ministry's territory. In the CBT, all of us decided that it would not be less than 9.5 per cent. The Labour Ministry appears to have no say in the matter. Earlier all decisions used to be taken unanimously by the CBT. This is the first time that the GPF is higher than the EPF. This is a social security measure and not a bank savings scheme, said Dipankar Mukherjee.
The claims and counterclaims over deficit and surplus issues have also raised a few doubts about the manner in which the EPFO, as a leading government financial institution, has been managing its funds. At the moment, these issues are secondary and rightly so. Restoring the status quo on the rate of return on provident fund accumulations of non-government employees is high on the agenda of the trade unions, which have in recent times come together on several issues, including inflation and price rise.
