EPFO interest rate at 8.65%’
Labour Minister opposes Finance ministry’s move to cut rate
This is the second consecutive year that North Block has urged the Labour Ministry to cut EPFO’s interest rate to keep adequate surplus.
“The finance ministry has recommended keeping the interest rate at 8.6% so that EPFO maintains adequate surplus. The labour minister has raised the matter with the finance minister this week,” Union Labour Secretary M. Sathiyavathy said.
Delay in interest creditThe latest tussle between finance ministry and labour ministry has led to a delay in crediting interest amount for 2016-17 to about four crore active subscribers. The EPFO’s central board of trustees, headed by Mr. Dattatreya, had approved an interest rate of 8.65% for 2016-17 in a meeting held on December 19. However, the labour ministry is yet to notify the interest rate due to pending in-principle approval of the finance ministry.
The Finance Ministry told the Labour Ministry in a missive in February that EPFO needed to keep adequate surplus, failing which the government will be liable to compensate for the losses caused by EPFO in case of “mismanagement” of funds due to its investments. Every year, the EPFO keeps a portion of its income as surplus over its liability.
The Finance Ministry advised the Labour Ministry to amend the Employees’ Provident Fund and Miscellaneous Provisions Act to “absolve the government of India from the conduct of business by the Board of Trustees in managing the fund.”
The EPFO later took up the Finance Ministry’s suggestions for discussion in its finance, investment and audit committee (FIAC) meeting held on March 27.
“From the date of inception till date CBT, EPF never submitted any proposal to government to compensate or indemnify any loss caused to the Employees’ Provident Fund by deposits in an approved bank or investment in securities,” the agenda item of the FIAC meeting said, countering the finance ministry’s views. The EPFO’s FIAC had deferred the agenda item to be taken up in the next meeting.
EPFO’s income projections in December 2016 showed the recommended interest rate of 8.65% would fetch ₹295 crore as surplus. Lowering the interest rate to finance ministry’s recommended 8.6% would leave EPFO with a surplus of ₹522 crore. A senior labour ministry official said the income projections were based on initial estimates and the actual surplus may easily stand at about ₹500 crore if interest rate is kept at 8.65% after the final estimates.
‘Clear interference’“The central board has never asked for any financial support from the government for managing the funds of EPF subscribers. This is clear interference in the functioning of EPFO’s central board and is not acceptable. The central board is competent to manage EPF funds and government should stay away,” BMS General Secretary Virjesh Upadhyay said.
The finance ministry had pressed for similar arguments last year to overrule the central board of trustees’ proposed interest rate of 8.8% for 2015-16. It had asked the labour ministry to keep the interest rate at 8.7% “to facilitate maintaining a reasonable rate of interest in case of decline in the returns on investment in the coming year.”
However, the EPFO’s interest rate remained unchanged at 8.8% for 2015-16 after the Labour Minister held several rounds of deliberation with the Finance Minister following protests from central trade unions.