The Union finance ministry on Monday rejected a demand for an interest rate of 9.5% on provident fund (PF) savings for 2010-11. There were vociferous demands on this score from unions and labour minister Mallikarjun Kharge. The finance ministry’s rejection came after doubts over the pending settlement of a large number of PF accounts. The Employees’ Provident Fund Organisation (EPFO), news reports suggested, had made calculations that indicated a surplus of Rs2,000 crore in its interest suspense account. This was the basis for its 9.5% payout rate recommendation.
Whatever the result of the dispute, it’s clear that a high interest rate requires investments in paying instruments, something EPFO is not ready to do. Unless that is resolved, hefty returns to employees may not be sustainable. The tragedy here is that no one wants to handle this politically sensitive issue.