Theft

Having boxed itself into a corner by paying out more interest to deposit-holders than their deposits have earned, the Employees Provident Fund Organisation (EPFO) seems to have decided that the way to avoid bankruptcy is to make theft official policy.

As this newspaper reported yesterday, the EPFO proposes to use the money lying in its interest suspense account to fund the Rs 716 crore gap between its earnings for 2004-05 and the dividend committed for the year.

It is worth pointing out that companies are not allowed to do what the EPFO now proposes. Dividends that lie unclaimed with firms cannot be appropriated by them.

Instead, after a gap of seven years, they are moved into an investor education fund administered by an independent trust; the company gets no benefit from this money.

By what logic should the EPFO get a benefit that has rightly been denied to companies? If the EPFO's Central Board of Trustees (CBT) approves this proposal, it would be acting in bad faith and should be challenged.

The interest held in suspense is money earned by the EPFO on its investments and includes inflows that have not been allocated to the accounts of members.

Accounts of members have not been updated since 2002-03, since it is only now that the final interest rates have been notified, and the accounts of several companies have not been updated for five to seven years despite the companies having deposited their EPF contributions on time.

In other words, since the EPFO's accounting system is antiquated (among other things, it persists with single entry book-keeping), it isn't even certain what exactly the unclaimed funds are.

All attempts to modernise the EPFO have been stalled, beginning with the celebrated removal of the provident fund commissioner.

An even more shocking proposal that is being put to the EPFO's trustees pertains to using the Rs 8,500 crore lying in some 20 million dormant accounts--of people who have either moved on to other jobs without withdrawing/transferring their money or who have died without settling their accounts.

While tapping this will require a change in the EPFO Act, doing so will be little short of theft. For one, since this money belongs to someone else, it will presumably remain a contingent liability in the EPFO's accounts even if it is dipped into to meet current needs.

Second, such a scheme will provide a virtually unending fund for the government to pamper the 13 to 15 million people who have active accounts in the EPFO (out of a national workforce of 370 million), and to continue to pay them a return that is significantly higher than what has been earned on their deposits.

Also, since availability of funds will no longer be a problem for several years to come, there will be no compulsion to reform the antiquated EPFO.