The new EPFO rules may help Modi hit an ambitious target of raising nearly USD11 billion through selling shares in state-run firms and minority stakes in private companies this fiscal year, a senior government official said, because for the first time EPFO will be able to buy the government’s shares. In the past, the government has nudged the state-run Life Insurance Corp of India into buying its assets when market interest is low, a model that could be replicated with EPFO
India’s state social security fund, undeterred by resistance from trade unions, will start investing in equity markets next month, the labour minister said, as part of a reform drive aimed at boosting the economy. With more than USD 100 billion of assets from some 80-million members, the Employees’ Provident Fund Organisation (EPFO) is one of the world’s largest. It will begin by investing in exchange traded funds, with the goal of earning higher returns.
India’s fiscal year ends March 31. An EPFO official said the fund annually invested nearly 1 trillion rupees (USD15.72 billion), out of which it could invest nearly 50 billion rupees (USD785.95 million) in equities between July and March. The move is part of Prime Minister NarendraModi’s agenda to reform Asia’s third largest economy, which includes changing tax, land and labour regulations.
At current investment rates, that would be about USD2.5 billion a year. Some unions have opposed EPFO investing in share markets as they worry that their life-long savings could be depleted in a market crash. Until now, EPFO’s market exposure has been limited to government and corporate bonds. It earned a return of 9.22 percent on its investments last fiscal year, and paid 8.75 percent to its subscribers.