With the Budget announcement to cut the interest rate on small savings by one per cent, the finance ministry has sent out a clear signal to the labour ministry to reduce the interest rate on the employees' provident fund from 9.5 per cent to 8 per cent.

Though Union Labour Minister Sahib Singh Verma has been successful in stalling several moves to bring the EPF interest rate down, postponement of the decision will, however, be difficult now, officials say.

However, it will not be an easy task for Union Finance Minister Jaswant Singh to persuade a recalcitrant Verma to fall in line.

Verma in a recent letter to Singh sought an "assurance" that the government would bridge the shortfall in income if the EPF interest rate was lowered.

Verma said the government must take it upon itself the responsibility of managing the huge EPF funds if the interest rates were to be reduced.

However, the finance minister has reiterated several times that the interest rate on EPF would have to be brought at par with the small savings rates.

But Verma had been insisting that it would be wrong to reduce the interest rate so long EPF was able to earn 9.5 per cent interest on its investments.

Labour ministry officials feel that Verma's position will be untenable following the Budget announcement. The finance ministry has almost prepared the ground for forcing the labour ministry to change the rate.

Verma may find it difficult to hold his grounds is evident from the fact that the finance ministry is trying to use about Rs 40,000 crore (Rs 400 billion) lying with private EPF trusts.

Officials are also concerned about the proposal to launch a pension scheme by using private EPF trusts' money. This was vehemently opposed by former Union Labour Minister Sharad Yadav and the central board of trustees.

Officials of the Employees Provident Fund organisation said the proposal, initially mooted by the Insurance Regulatory Authority, would expose a large chunk of EPF amount to risks of speculation by private fund managers.

The finance ministry is keen to regulate the huge amount lying with EPFO and private EPF trusts for the "good of economy."