Focus on the larger picture

Reform EPFO, don't tweak it.

The finance ministry has set up a needless confrontation with the labour ministry and more importantly, with powerful labour unions, by rejecting the interest payout proposed by the Central Board of Trustees of the EPFO on provident fund (PF) balances in 2010-11.

The labour minister, as chairman of the Board of Trustees, had recommended a payout of 9.5% for the current fiscal (1% higher than in the previous year) on the grounds that the EPFO had discovered a substantial surplus in its suspense account. The finance ministry has, however, contested this claim and asked the board to first put its house in order before paying the higher rate of interest.

This is a tall order. Given that the higher rate was announced months ago, but the finance ministry chose to keep quiet all along, it might have been more prudent (and gracious) not to nitpick with the trustees now.

Updating and settling all pending claims of five crore subscribers is a tough job at the best of times. More so for an organisation like the EPFO that has suffered years of neglect and has only recently begun to computerise its operations.

In such a scenario, to withhold approval of the rate of interest approved by the Board of Trustees on the grounds that the EPFO's accounts are suspect is to needlessly invite trouble. Especially since it almost a certainty that the government will backtrack if the unions decide to force the issue.Under the PF Scheme 1952, the rate of interest is fixed by the central government in consultation with the Central Board of Trustees.

In practice, however, the government has invariably gone by the latter's recommendation. The unions are likely to see in any attempt to deviate from past practice a move to browbeat the trustees to toe the finance&'s ministry's line and invest in the stock market. Admittedly, there is much that is wrong with the EPFO, starting with its archaic system of book-keeping, to its woefully poor record-keeping, huge backlog and deplorable quality of service.

But none of this is new; nor can it be set right overnight. The government needs to set its sights on the bigger goal of reforming provident funds, not encourage confrontations between ministries.