|Monday, 21 March 2011 00:00|
The finance ministry seems to be making a habit of throwing in the towel too easily. It did it with A Raja when he wanted to give out licences on the cheap, and it’s done it again with labour minister Mallikarjun Kharge who wants to pay a 9.5% interest on provident fund accounts for 2010-11. When Kharge justified this by saying he’d “found” a R1,731-crore surplus, the finance ministry got the CAG to do an audit of the Employees Provident Fund Organisation (EPFO). The CAG, while red-flagging various flawed accounting policies of the EPFO (it is probably the only organisation left in the world using single-entry accounting!), said it was not in a position to verify the surplus since the accounts were a mess. Nor is the CAG the only one to say that. The EPFO’s pension arm (EPFO has an Employees Pension Scheme and an Employees Provident Fund) had a shortfall of R22,659 crore in 2005-06, and while estimates put this at around double now, there is no official estimate after 2005-06. The reason? Even the 2005-06 actuarial estimate was based on a small sample, and the actuaries have refused to do the exercise as they say the samples aren’t representative! In such a situation, even if the EPFO has a R1,731-crore surplus, it pertains to the EPF part of it. You’d think the organisation would try to save some money to try and reduce the massive deficits in the other part.
The finance ministry has told the EPFO that it will allow a 9.5% payment but on the condition that all its employee accounts will have to be updated within the next six months—the logic is that if there is any shortfall, it will get exposed by this—and if there is any shortfall, it will have to be made up by giving out less interest next year. The finance ministry appears to be wilfully misleading itself. For one, the EPFO has never kept to any deadline in the past, whether it applies to modernising its accounts or to allow online access to subscriber accounts. Also, since the EPFO does not maintain double-entry accounts, where monies are automatically debited and credited under each accounting head, there is no way of knowing where the money comes from. So, even if the EPFO actually does update each subscriber account, this could well be from the fresh money it gets each year and not from the R1,731-crore surplus. If the idea is to protect subscribers, why not allow them to migrate their accounts from the EPFO to the New Pension Scheme, which is run by professional money managers, if they wish to? Even the moderately performing mutual funds give higher returns than the EPFO.