INDIA - The Employees Provident Fund, the main government-operated savings plan in India has announced it will cut interest rates to 8.5% for the financial year 2005-2006 to its 40 million participants, according to Watson Wyatt.
During the last three years, the interest rate paid by the Employees Provident Fund organisation (EPFO) stood at 9.5%.
Watson Wyatt claimed that some political parties and trade unions have been pressuring the government to retain that level but Labour party minister Chandrasekhar Rao said the rate would have to be reduced to 8.5% to lesson the financial impact on the fund.
Despite the cut, the fund is expected to face a shortfall between the income earned on its investments and the interest declared for the benefit of its members of some US$85m in the current financial year.
In addition to to this measure, the EPFO is planning to collect arrears from defaulters and use unclaimed deposits to meet the shortfall.
The fund covers most private sector workers, most of whom contribute 12% of their wages to the fund, the same level as the employees. By Daniel Flatt
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