Finance Ministry may raise wage cap for provident fund to Rs 15,000 per month
NEW DELHI: The finance ministry is considering a proposal that can sharply reduce the government's borrowing costs, bring longterm savings into the cashstrapped infrastructure sectors, deepen the corporate bond market and, possibly, even make Indian stocks less vulnerable to the whims of foreign institutional investors.
The proposal, moved by the labour ministry, seeks a conditional pact with the finance ministry, under which the finance ministry will raise the statutory wage ceiling for provident fund contributions to Rs 15,000 per month from Rs 6,500. The labour ministry will in turn commit to route a bulk of the incremental annual inflows of Rs 90,000 crore into government bonds and infra projects, where it does not invest.
The proposal, if accepted, will also moderate the cost of corporate debt and deepen the bond market, with officials not ruling out the possibility that the country's largest retirement fund may have to consider equity investments in future as its fast-growing corpus will need more avenues to invest in.
The Centre's borrowing costs rose about 2% between May and August this year, as the depreciating rupee forced foreign investors to pull out thousands of crores from the debt market. The Employees' Provident Fund Organisation's (EPFO) kitty is around Rs 6.5 lakh crore, which makes it India's second largest nonbanking financial institution after Life Insurance Corporation of India.
The proposal, moved by the labour ministry, seeks a conditional pact with the finance ministry, under which the finance ministry will raise the statutory wage ceiling for provident fund contributions to Rs 15,000 per month from Rs 6,500. The labour ministry will in turn commit to route a bulk of the incremental annual inflows of Rs 90,000 crore into government bonds and infra projects, where it does not invest.
The proposal, if accepted, will also moderate the cost of corporate debt and deepen the bond market, with officials not ruling out the possibility that the country's largest retirement fund may have to consider equity investments in future as its fast-growing corpus will need more avenues to invest in.
The Centre's borrowing costs rose about 2% between May and August this year, as the depreciating rupee forced foreign investors to pull out thousands of crores from the debt market. The Employees' Provident Fund Organisation's (EPFO) kitty is around Rs 6.5 lakh crore, which makes it India's second largest nonbanking financial institution after Life Insurance Corporation of India.
Arusi
PGDM 2nd year
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