Over 50 million employees of the organised sector are in for a surprise Dussehra bonanza from the government. The interest rate on the Employees’ Provident Fund (EPF) could be hiked to 9.5% this year, just enough beat the high inflation.
The EPF rate has been 8.5% since 2005-06. The new wholesale price index unveiled on Tuesday put the inflation rate for August at 8.51%.
Although the provident fund’s estimated earnings for 2010-11 would only support a payout of 8.5%, the EPF organisation has managed to discover a hidden surplus of close to Rs2,000 crore in its accounts.
EPFO follows a single-entry based accounting system, where interest is manually credited to workers’ accounts. The board had sought to ascertain the status of the Interest Suspense Account, where EPF’s annual income is parked till it is distributed to members.
The account had a balance of Rs27,000 crore by the end of 2009-10. This means that the EPFO isn’t able to credit the annual PF rate to all its 5 crore-odd members’ accounts before the close of a financial year in question, thanks to its archaic procedures.
The PF department has admitted that the huge balance in the account would ‘ideally’ vanish if all past years’ annual accounts were updated. But the board wanted to know if the suspense account had a net deficit or surplus — a question raised persistently in recent years.
To answer that question, the department reopened the EPF’s balance sheet since 1952 and carefully examined earnings vis-à-vis accrued liabilities. The exercise has thrown up a surplus of around Rs2,000 crore. A 1% hike from the existing PF rate of 8.5% would require around Rs1,700 crore surplus beyond the projected income for 2010-11.