The decision of the Central Board of Trustees of the Employees Provident Fund at its meeting on May 28 to recommend a 9.5 per cent interest rate for 2004-05 has expectedly attracted a widespread and scathing attack, especially from the financial media.

One significantly underplayed fact in this whole exercise is that it was only the representative of the Left trade unions who vehemently opposed the move to dip into the special reserve fund for bridging the gap between the interest earnings on EPF investment and a pay out of interest at 9.5 per cent rate.

The representatives of employers, the state and the Central governments, including the one from the ministry of finance (MoF), were all together in approving this unethical -- and improvident -- decision.

This is a dubious route to 'honour' the prime minister's commitment not to reduce the interest rate on EPF and has ominous portents for the future.

The SRF had been constituted in the past from out of the forfeiture of employers' contributions in respect of workers exiting the EPF before completion of five years of service.

This forfeiture clause in the EPF scheme had been deleted in 1990 and there is no further inflow into the SRF, except for interest accruals.

The SRF is utilised to help outgoing members or their nominees/ heirs, where an employer had defaulted in payment of provident fund contributions collected from workers.

The move to draw around Rs 716 crore (Rs 7.16 billion) will almost empty the corpus in the SRF and the workers of defaulting establishments will be denied of any relief in the future.

On the face of these facts, it is intriguing to find that the critics of this decision have focussed solely on the Left and the trade unions, again heaping praises on the finance minister for staying stubborn on "no bail out"!

The finance ministry, which kept in abeyance the interest rate notifications for the earlier two fiscals (2002-03 and 2003-04), refusing to clear them for fear of dipping into "interest suspense account" for meeting a small deficit for the latter year, had no qualms of conscience in suggesting the present move to drain the SRF.

One can surely fault the trade unions for insisting on enhancing the interest rate -- not only from the 8.5 per cent "interim rate" declared by the previous labour minister in August 2004 -- but also to the point of restoring the former 12 per cent even.

Counter it, if you can, on the strength of coherent logic. But heaping the choicest abuses on the trade unions and even smelling an unethical quid pro quo on BHEL disinvestment are acts of desperateness.

In the first instance, why were the administrative interest rates dropped from 12 to 8 per cent by April 2002? The argument then was that the inflation rate which was in double digits had softened to just 1 to 2 per cent.

How is it that the same argument of "softened inflation" holds good even when the finance minister has recently expressed concern over the rising inflation and the upswing in the interest rates in the banking system?

It was also said a soft interest regime would benefit the economy. Who really benefits? In the annual policy statement for 2004-05, the Reserve Bank of India [Get Quote] (RBI) governor had noted: "While there is intense competition among banks to lend to large top-rated borrowers, other borrowers with long-standing relationship with banks and good credit record do not get the benefit of lower rates".

The RBI report on Trend and Progress of Banking in India, 2003-04 reveals the following stark realities:

• "Despite a fall in deposit rate and lowering of the cost of funds, the range of prime lending rates remained sticky."
• "As at end-March 2004, public sector banks' median (representative) lending rate for the demand and term loans...was in the range of 11 to 12.75 per cent and 11 to 13.25 per cent respectively."
• "As at end-March 2004, the banking sector held 41.3 per cent of its net demand and time liabilities in SLR securities as against the statutory minimum requirement of 25 per cent."

The plastic card economy is known to charge interest rates even up to 36 per cent. Thus, while the soft interest regime solely benefits the Central government and big companies, the EPF subscribers -- and also subscribers to GPF, PPF and small savings instruments -- are forced to forego their interest earnings.

This is justified in the name of the market god. What strange market economy do we have in India, where the interest rate is decided not by the lenders (workers and small saving community) but by the borrowers (government)!

Today, the EPF and other social security funds are mandated to invest in Central and state government securities and PSU bonds, that is, in instruments that have an interest range of only 5.5 to 6 per cent.

Of course, the members of the EPF board are decried for their "conservatism" in refusing to exercise the limited option extended by the government, to invest 10 per cent of annual accretions in the stock market.

It was the prime minister of the country who decided to hand in the 9.5 per cent interest rate on EPF when the finance minister met him on February 2.

Maybe even the PM's decision could be faulted as one bereft of financial "wisdom" and succumbing to pressure. The finance minister had the obligation to honour the PM's commitment.

If he has chosen such a dubious route, with ominous portents to "honour" the prime minister's commitment, why is hell let loose on workers and their representatives? Perhaps, this is the inexplicable mystery of "globalisation"!