Saturday, December 3, 2011

Rate hike demand for GPF

The government's decision to raise moribund interest rates on small savings instruments like the Public Provident Fund (PPF) and National Savings Certificates has triggered a clamour for a similar rate hike on the retirement savings of about eight crore government and organised sector workers. 

From December 1, PPF deposits will earn interest at 8.6%, while a 10-year National Savings Certificate will yield 8.7%. The PPF rate had been at 8% since 2003-04, but with inflation hovering around double-digits and bank deposits paying more interest in recent times, small savings inflows had turned negative this year. 

While voluntary investments in PPF and NSCs have been made more attractive, interest rates on two mandatory savings instruments, the General Provident Fund (GPF) and the Special Deposit Scheme (SDS), remain unchanged at 8%. 

Traditionally, the interest rate on the GPF, where around 1.5 crore government employees invest part of their salary, and the SDS, move in sync with the PPF rate. The SDS, a quaint scheme launched in 1975 and closed for fresh investments in 1997, holds around Rs 1,10,000 crore of investments from retirement funds like the Employees' Provident Fund Organisation, Seamen's Provident Fund and Coal Miners' PF. 

These provident funds together provide a social security net to around 6.5 crore formal sector workers. "Since the government is raising interest rates across schemes, we have requested them to raise interest rates on the Special Deposit Scheme (SDS) where a large chunk of employees' social security savings are parked and are earning just 8%," Rajya Sabha member Tapan Sen told ET. 

"There's no logic against raising rates as the government can't discriminate between similar savings," he added. Sen has asked Labour minister Mallikarjun Kharge to take up the demand immediately with Finance Minister Pranab Mukherjee. 

"Since the interest on SDS is credited to provident funds on January 1, every year, prompt action for revising the interest rate can also boost the PF interest rate for 2011-12," the MP's letter stressed. All India Trade Union Congress general secretary and Lok Sabha MP Gurudas Dasgupta has also urged Kharge to act fast on the issue, reminding him that employee representatives on the EPFO's board had been seeking an upward revision in SDS rates for a long time, so that workers get better returns on their provident fund savings. 

The government employees are also preparing to corner the Centre over the PPF rate hike. All India Railwaymen's Federation general secretary Shiv Gopal Mishra said that they have been demanding that the GPF rate should be on par with the EPF rate, which was 9.5% in 2010-11. 

"Now, if they don't even bring it in line with the PPF rate, it would be grave injustice to government workers," Mishra said.

Source : Economic Times

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