EPFO’s hazy maths to hit subscribers?

The finance ministry has raised doubts over how the Employees’ Provident Fund Organisation (EPFO) managed to extract an extra Rs 1,731 crore from its accounts to reward subscribers with an additional 1 per cent interest rate this year. The Central Board of Trustees had in September declared a 9.5 per cent rate for 2010-11 after discovering a surplus in its interest suspense account. In 2009-10,it had paid 8.5 per cent to its subscribers. Although the interest rate is declared by the labour ministry,it is the finance ministry that notifies it. Without an official notification,subscribers who withdraw money from the PF would not be able to earn the 9.5 per cent rate applicable for this year. According to government sources,the finance ministry could also ask the Comptroller and Auditor General of India (CAG) to audit the accounts of the EPFO to get a better insight into the calculations. It has already held some discussions with the EPFO on the issue. “The core issue the finance ministry wants to understand is that if the balance in the suspense account has not yet been finalised,then how was this surplus money of Rs 1,731 crore discovered. What was the formula used for arriving at this figure,” a source familiar with the development said. The finance ministry fears that once a high rate for EPFO is set,it might be politically difficult to lower it in the coming years. It had recently appointed a panel chaired by the Reserve Bank of India deputy governor Usha Thorat (who has retired since) to review the current system of fixed returns on all small savings schemes. While the panel will most likely suggest a shift to market aligned rates,the sources said it would be a tricky affair given the EPF’s new 9.5 per cent return benchmark. On its part,the EPFO too is concerned about lowering the rate next fiscal when the cushion from the suspense account is not available and is already looking at options to maintain the rate. As reported by The Indian Express earlier,soon after the one per cent interest rate hike was declared,the EPFO’s statutory auditor,the CAG had sought details on the source of surplus funds. The EPFO,on its part,has maintained that the surplus cash was discovered during an examination of its suspense account since the fund’s inception in 1952. The exercise,commissioned to understand the status of the Interest Suspense Account,revealed a miscalculation of accrued interest from 1993-94 onwards when the basis of calculating interest was changed.