The protracted issue of fixing the interest rate on Provident Fund (PF) deposits was finally settled on Monday with the Board of the Employees’ Provident Fund, under pressure from Left- backed trade unions, agreeing to continue paying 8.5 per cent interest rate to its nearly four crore subscribers for the financial year 2006-07.

“It has been decided to pay 8.5 per cent interest rate on EPF during 2006-07,” Labour Minister Oscar Fernandes told newspersons after a three-hour long meeting of the Central Board of Trustees (CBT) of the Employees Provident Fund Organisation.

The decision pertaining to interest rate on PF deposits for the current fiscal 2007-08 will be decided later, he said.

Left unions unhappy
However, representatives of the Left-affiliated trade unions rejected the decision and demanded at least 9.5 per cent interest rate for the fiscal 2006-07.

In the past one year the Central Board of Trustees had met six times to determine the interest rate on PF deposits of the subscribers for the fiscal 2006-07.

The Left-backed trade unions, who were opposed to any cut in the interest rate on PF deposits, had been pushing for an increase in the interest rate in the wake of rise in interest rates on bank deposits. They suggested that since commercial banks were offering 10.5 per cent interest rate on fixed deposits, the Employee Provident Fund  rate should be hiked accordingly.

The Finance Ministry, which was not in favour of any hike in interest rate, was pressing for reduction in the interest rate on the ground that Employees Provident Fund Organisation was not getting any surplus earnings to pay higher interest rate on PF deposits.

The today’s decision to retain 8.5 per cent interest will put a burden of Rs 450 crore on the Employee Provident Fund. Fernandes said the Employee Provident Fund had constituted a sub-committee to assess the Employees Provident Fund Organisation’s  finances.

Surplus of Rs 595 cr
The report of the committee placed before the meeting for deliberation found that there would be a surplus of Rs 595 crore with the Board. This surplus is calculated by taking the fund lying in the  Interest Suspense Account, Contingency Reserve and Special Reserve Fund.

Even after paying 8.5 per cent interest rate, the Employees Provident Fund Organisation would be having a surplus of Rs 83 crore, Employee Provident Fund sources said.

The Central Board of Trustees of the Employees Provident Fund Organisation will submit its recommendations to the Finance Ministry and the Ministry would issue a notification about the interest rate on Provident Fund deposits during the fiscal 2006-07.

The Employee Provident Fund has a corpus of Rs 94,000 crore including the pension fund.

Mr Fernandes said the total interest outgo during 2006-07 (calculated on the basis of 8.5 per cent rate of interest) would be to the tune of Rs 7,800 crore.

In reply to a query, Mr Fernandes said the board also discussed the government’s suggestion to invest five per cent of the corpus in the stock market but no decision was taken.