ECONOMY: Candy as PF hits pay dirt – Board proposes high rate of 9.5%

ECONOMY: Candy as PF hits pay dirt – Board proposes high rate of 9.5% – sensex to continue surge to 21,000 mark as predicted, with minor correction breaks ?!!

FROM THE TELEGRAPH
BY JAYATI GHOSE
AND SRIKUMAR BONDYOPADHYAY

FORWARDED BY GORKHS DAJU

Sept. 15: The employees’ provident fund trustees have recommended an annual interest rate of 9.5 per cent, dipping into a serendipitous surplus to signal the first full percentage point increase in five years.

The SOP - understanding things in a much larger perspective ?!!

If the finance ministry clears the “festival gift”, over 4.7 crore employees in the public as well as private sectors will stand to benefit. Their retirement savings now earn interest at the rate of 8.5 per cent a year.

The proposed rate will ensure that the EPF becomes the most lucrative savings instrument. The highest interest earner so far is the senior citizens’ savings scheme at 9 per cent. Small savings schemes offer 8 per cent and bank deposits up to 7.5 per cent.

The one percentage point increase proposed by the Central Board of Trustees of the Employees’ Provident Fund Organisation (EPFO) means that every Rs 1 lakh in the savings will earn an additional Rs 1,000 this year as interest.

The EPF rate was maintained at 8.5 per cent since 2005-06, largely because of divisions over how and where to invest the saved funds.

The government had proposed that part of the money — the fund has built up a corpus of Rs 3,48,800 crore, equivalent to 6.26 per cent of the country’s gross domestic product — be invested in the stock market for better returns.

But trade unions, which are represented on the board of trustees along with employers and the government, are arrayed against the proposal. Today, too, the board took no decision on parking funds in the stock market.

The plan to hike the rate — which will be seen as a populist measure ahead of Assembly elections in several states such as Bihar and Bengal — came through largely because of a surplus of Rs 1,731 crore thrown up by an audit of the Augean stables of the fund.

Since bookkeeping measures are being credited for finding the surplus, it remains to be seen if the fund can sustain the interest rate next year also. Some analysts expect that rate to be brought back to 8.5 per cent next year.

Industry chamber Assocham said the high rate of interest would not be sustainable by the EPFO on the basis of the investment pattern decided by the government. “It is doubtful that this high rate of interest could be sustained,” the industry body said.

Ficci said the hike could put pressure on interest rates of competing saving instruments.

Before April 2005, the retirement fund manager had given an interest rate of 9.5 per cent for three consecutive financial years.

As part of the clean-up operation, the board of trustees has decided that provident funds not operated for more than three years would not get any interest. “There are over 3 crore dead accounts, in which over Rs 15,000 crore is parked,” D.L. Sachdeva, the AITUC secretary, said.

“The 9.5 per cent interest rate will result in a deficit of about Rs 1,600 crore over the EPFO’s estimated earnings in 2010-11,” said Samirendra Chatterjee, the central provident fund commissioner.

“We have located a surplus savings of Rs 1,731 crore in our interest suspense account by undertaking a reconciliation of our accounts and balance sheet since inception in 1952. This surplus will take care of the shortfall,” the commissioner added.

“For over 4 crore subscribers, this is a big gift from EPFO trustees,” labour minister Mallikarjun Kharge said.

Growth forecast from UK minister – time to start modernising to 1st world standards, political commitment necessary but still unavailable ?!!

Hidden Stones - hidden fanaticism, the greatest stumbling block that the west wants as a block to India's growth ?!! (AP)

FROM THE TELEGRAPH
BY AMIT ROY

London, Sept. 15, 2010: By the year 2040, India “will have an economy the size of Germany, Britain and France combined”, Vince Cable, the UK’s highly regarded secretary of state for business, innovation and skills forecast in a speech in London today.

Speaking to The Economist Emerging Markets summit, Cable, who once worked an India correspondent for The Economist, explained that China and India were merely reoccupying the dominant position they once occupied.

“In many ways, the title of this talk, The New World Turned Upside Down, is a strange one,” commented Cable.

This is because “for most of human history the centre of gravity of the world economy was in areas we now call, in rather patronising terms, “emerging”. European ships went East because that was where the wealth was — be it in spices, cotton, porcelain or silk and the rest of it. Nevertheless, the rapid development of China and India is a remarkable phenomenon. It is clear that major so-called emerging markets have already emerged.”

What he now wanted to do was to examine “the consequences of re-emerging economies on the world economy”, said Cable, now an increasingly familiar figure to Indians in the UK — for example, he was the main speaker last week at the annual dinner of the Indian Journalists’ Association where he threw away his prepared speech “full of facts and figures” and instead spoke informally.

“The bigger emerging countries — China, India and probably Brazil — have achieved very substantial growth and reductions in poverty levels based largely on an expansion of their domestic market and domestic savings,” he pointed out today.

In his opinion, “it should not come as a surprise that China and India, two countries which each account for 20 per cent of the world’s population, will increasingly dominate the global economy”.

Referring to the late British economist, he said that “two hundred years ago, according to Angus Maddison, who did brilliant work on old economic statistics, China accounted for around 35 per cent of the world’s population and almost 30 per cent of world GDP, while India accounted for 20 per cent of the world’s population and 16 per cent of GDP. Back then, incidentally, the US represented 1 per cent of the population and 2 per cent of GDP.”

His prediction?

“With India growing in recent years at around 7 per cent a year, China at 9 cent and the western world at 2-3 per cent before the recession, it seems likely that, barring disaster, China will have a bigger economy than the USA well before 2040. By then, India will have an economy the size of Germany, Britain and France combined — with Brazil, Mexico and Russia also having an economy bigger than any European country.”

The British government’s commitment to improving relations with emerging markets “has been backed by actions — the Prime Minister led the biggest British trade mission to India… and I was also recently in Brazil, as well as India. We also warmly welcome the glut of inward investment from emerging economies by companies — and institutional investors including sovereign wealth funds. Companies from emerging markets like Tata … are investing substantial amounts in the UK economy.”

He told his audience “The UK government is clear that a return to protectionism is not the way forward. In particular, concluding Doha would safeguard against potential protectionism.”

But he also acknowledged that “there are many competing pressures and negotiating a worthwhile global trade deal will be difficult. We know that there is resistance in the US Congress and parts of the EU and indeed there are sectoral interests in India and China too.”

He summarised his main message: “A lot is at stake… we cannot just assume globalisation will continue. Without serious political commitment it will fall apart.”

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