Intelligentguess

Today’s Economic Times carries an editorial on the Indian Government’s pusillinamity on the decision relating to interest rates on Employee Provident Fund (EPF) balances.

As the editorial argues, it is high time we align the return from EPF to market interest rates. Better still, the fund should be allowed to be managed professionally by fund managers (instead of the directed investement policy being currently followed).
Additionally it should be allowed to take exposure to alernate asset classes to boost return from the fund for its constituents.

You may have notice my use of the term “return from the fund” instead of the traditional usage of “interest rate on the fund”. I have never understood why we continue to use the term interest rates (signifying, incorrectly, debt) when in reality it should be understood as returns from the fund (signifying, correctly, investments).

To the uninitiated EPF is a defined contributory (pension) scheme managed by the Government of India for the workers (both blue and white collar) of the organised sector of India. The returns (somewhat erroneously called interest rate) from the fund are announced and credited each year. The rate of return announced is a political decision having little or no relevance to the return generated by the underlying investments of the fund. The investments of the fund are made in a fixed pattern (predominantly debt instruments of government owned entities; no equity exposure). More details are available on the EPFO website

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Situation

Euro area - countries recorded a surplus of 16.6 bn euro in Q4 2006, compared with a deficit of (-3.5 ) bn euro in the Q4  2005 and a deficit of (-2.6) bn euro in Q3 2006.

Break up of the Current account data ( seasonaly adjusted )

Currently the external Balance of Goods and Services as a % of the GDP stands at 0.52%  for Q4 2006 

Note

The Current Account - Balance of Payment data contains the external balance of trade for Goods and Services as well as balance of income viz outflows.  

A separate external Balance of Goods & Services data is released as part of the National Accounts data ( released along with the GDP data) 

Conclusion ( click/double click on chart for the bigger picture)

A look at the historical data (from 1999), of  Trade in Goods and Services as a % of GDP ( taken from the BOP statement ) , shows that the contribution of Goods and Services towards GDP has been rising.

Trade in Goods and services ( as per the National Accounts statement)  - has played a large part in the current growth in Euro GDP growth - esspecially in Q4 2006   (GDP growth of 3.28% p.a in Q4 2006)

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