Monday, October 29, 2007

India's Provident Fund: A Question

Can anyone out there explain to me the concept of India’s provident fund system, India's answer to a social security system? I have read Wikipedia's explanation, of course, but it only scratches the surface. Currently, the fund’s rate of interest is pegged at 8.5%. My question is: where’s the money invested to garner such a high return? Given the statism and anti-market sentiment of the current government (it’s obvious they don’t understand the concept of risk), I doubt it’s invested in the stock market, where such a high return is possible. So, where does the money come from?

The reason I’m asking is that the C.I.T.U., the trade union wing of the Communist Party of India (Marxist), is bitterly complaining about the “paltry” rate of return, and is demanding the government increase it.