EPFO should invest in market: Chidambaram

When asked whether there is a case for increasing the EPF rate in view of the rising inflation, he said that the Government cannot increase the interest rates on Special Deposit Schemes (SDS), where the bulk of the EPF funds are parked.

"SDS gets eight per cent returns. You cannot touch that eight per cent, because that applies to very many instruments also. So, it cannot be looked at in isolation," he said.

The EPFO, however, he added, was welcome to take money and invest it elsewhere, if they can get better returns. "We have told them (EPFO) two-three years ago that you can withdraw SDS money and invest it elsewhere," he said.

Finance Minister's statement comes after some members of the Central Board of Trustees of EPFO has raised the demand for increasing interest rate on provident fund from 8.5 per cent to 12 per cent in view of the rising inflation.

EPFO board had earlier rejected the proposal to invest five per cent of its funds in the stock market following opposition from trade unions.

The board at the recent meeting of the trustees on July 5 deferred the decision on revising the interest rates. With inflation inching towards 12 per cent mark, 8.5 per cent interest rate fetches negative real returns.

Even at 8.5 per cent interest rates, according to estimates, EPFO would have a deficit of around Rs 139 crore on its estimated income of Rs 10,552 crore during 2008-09.

However, if the interest rate is reduced to 8.25 per cent, EPFO would have a surplus 174 crore.

Therefore, EPFO was earlier exploring the option of reducing interest rate to 8.25 per cent. However, this option faced strong opposition from employees representatives.

"We would demand interest rate of something around 12 per cent for the current year (2008-09)," CITU National Secretary W R Varadarajan, who is also member of Central Board of Trustees of EPFO, had said.

Government had reduced the interest rate on provident fund to 11 per cent in July 2000 and subsequently to 9 per cent in April 2001 citing lower inflation rate, he said.