New Delhi: The simmering conflict between the finance ministry and the labour ministry over India’s main retirement fund shows no signs of ending.
The Central Board of Trustees (CBT), the apex decision-making body of the Employees’ Provident Fund Organisation (EPFO), and the labour ministry have refused to back down on the 9.5% payout on EPF and have also rejected the finance ministry’s suggestion to invest in the stock market.
The decision against investing in the stock market was taken on Tuesday following the finance ministry’s refusal to provide assurances on returns.
“Since the department of finance did not guarantee us an assured return, CBT has decided to say no to stock market investment,” labour minister Mallikarjun Kharge said after the meeting.
The department of financial services had written to the labour ministry on 10 December that “there is no question of government providing the sovereign guarantee to any provident fund, as this will create perverse incentives and moral hazard on the part of the trustees in exercising due diligence while exercising judgement on investment choices.”
A copy of the letter is in Mint’s possession.
Kharge sought to downplay the rift between the labour and finance ministries over the 9.5% payout for the 2010-11 fiscal, a one percentage point increase over the previous year.
“We will get 9.5% interest to millions of EPF account holders. They (finance ministry) will approve our letter,” said Kharge, who is also CBT chairman.
The increased payout is to be funded by what EPFO says is surplus money in its corpus.
In a note dated 11 January, then finance secretary Ashok Chawla had written to the labour secretary that the “surplus cannot be identified without updating all member accounts and it is incorrect to describe the sum of Rs1,731 crore as surplus”.
Mint has reviewed Chawla’s letter, which also says that “the audit has further observed that this amount could constitute a liability of EPFO payable to those members whose accounts are yet to be updated along with interest”.
Labour secretary Prabhat Chaturvedi said on Tuesday that he has explained the situation to the finance ministry and assured “EPF account holders of the 9.5% payout... We are confident to notify it soon, let’s say by end of March.”
CBT, which comprises representatives of EPFO, labour ministry, trade unions and employers, was persuaded not to invest in the stock market by its recent volatility.
“In recent times, you have seen the stock market tumbling more than 10% and EPF account holders cannot take this kind of risk,” Chaturvedi said.
CBT member Dipankar Mukherjee of the Communist Party of India (Marxist) said that “the Central government is not ready to assure a certain rate of interest on EPF if it enters the stock market, but can waste Rs1.76 lakh crore on the 2G scam”.
He was referring to the notional loss arrived at by the government auditor on account of the allocation of second-generation (2G) telecom spectrum in 2008.
There are at least 47.2 million EPF accounts in India and the corpus is around Rs3 trillion. The finance ministry had advised EPFO to invest up to 15% of this in stocks for a better yield.
In the 10 December letter, the department of financial services had told the labour ministry that long-term investment in financial instruments, including the stock markets, should be considered.
Separately, CBT decided to resume investing in LIC Housing Finance Ltd (LICHF), some officials of which are under investigation on suspicion of having taken bribes to disburse loans.
“The finance ministry has now assured us that EPF money is safe with LICHF and the problem is related to a few individuals and not the organization. Moreover, it’s a Central government-backed organization,” said D.L. Sachdeva, secretary of the All India Trade Union Congress.
EPFO, which suspended investment in LICHF on 9 December, had earlier earmarked Rs846 crore for buying its bonds, of which Rs454 crore has been invested. “We will resume the investment immediately,” Chaturvedi said.