Finance seeks Labour reply: Is 8.65% EPF interest rate sustainable?

The Finance Ministry has also sought details from Labour Ministry on the number of inoperative accounts.

Written by Aanchal Magazine | New Delhi | Updated: February 16, 2017 8:07 am
epfo, epfo rate, provident fund, provident fund rate, epfo interest, epfo interest rate, business news, india news On Tuesday, Labour Minister Bandaru Dattatreya had said that both ministries were on the same page regarding the EPF interest rate.(File/Express Photo)

The Ministry of Finance has raised red flags on the sustainability of the 8.65 per cent interest rate for 2016-17 for subscribers of the Employees’ Provident Fund Organisation (EPFO). This rate has been given the go-ahead by the Ministry of Labour and Employment.

In a missive to the Labour Ministry last week, the Finance Ministry sought clarifications on the 8.65 per cent interest rate, with the main query pertaining to the EPFO’s ability to pay this level of interest rate and the payouts to be made in case of inoperative accounts.

Of its nearly 17 crore subscribers, about four crore are contributing subscribers. As per general practice, the decision of the Central Board of Trustees (CBT), the governing body chaired by the Labour Minister that manages the fund, needs the Finance Ministry’s approval.

“If it (EPFO) earns more, it can pay more. But our main concern is whether 8.65 per cent interest rate is tenable or not. We just want to be sure about their ability to pay this level of interest rate, failing which the Centre won’t be able to provide funds,” a senior Finance Ministry official told The Indian Express.

The Finance Ministry has also sought details from Labour Ministry on the number of inoperative accounts. “We have sought details of the total number of accounts with segregation of active and inoperative accounts. We want to ensure that contributing members do not suffer at the cost of inoperative accounts,” another official said.

The Labour Ministry, the officials said, is yet to respond to the queries of the Finance Ministry.

On Tuesday, Labour Minister Bandaru Dattatreya had said that both ministries were on the same page regarding the EPF interest rate. “The Labour Ministry and the Finance Ministry (view) is the same. There is no difference on 8.65 per cent rate of interest on EPF. It is in the process and I will pursue it personally,” Dattatreya said.

After its 215th meeting in December, the CBT of EPFO recommended an 8.65 per cent interest rate for 2016-17, the lowest in four years. According to calculations presented at the meeting, retaining the interest rate at last year’s 8.8 per cent would have resulted in a deficit for 2016-17 at Rs 383.82 crore. At a lower interest rate of 8.7 per cent, there would have been a marginal surplus of 69.34 crore. At 8.65 per cent, the rate proposed by the CBT, the projected surplus for 2016-17 was pegged at Rs 295.91 crore.

Last year, the Finance Ministry approved a lower EPF rate of 8.70 per cent for 2015-16, after the Labour Ministry announced an 8.80 per cent rate of interest. After trade unions protested, the Finance Ministry reverted to the initial announcement of 8.8 per cent interest rate for 2015-16.

The Finance Ministry has been asking the Labour Ministry to bring the EPF interest rate in alignment with other small savings schemes as it continues to be the fixed income instrument with the highest return.

In December, the government had kept interest rates on small savings schemes unchanged from the previous quarter for January-March.

Interest rate on Kisan Vikas Patra has been pegged at 7.7 per cent, while that for Public Provident Fund is 8 per cent and on term deposits 7-7.8 per cent. The highest interest rate among the small savings schemes is for Sukanya Samriddhi Account Scheme and 5-year Senior Citizens Savings Schemes at 8.5 per cent each for the January-March quarter.

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  1. D
    Feb 16, 2017 at 5:05 am
    Interest rates are linked to the inflation. Since Indian economy is inflationary and till recent times, inflation was high. This has resulted in high interest rates (off course for both loans and deposits). We are used to high returns compared to other parts of the world and reduction in interest makes us rightfully worried. EPF is a long term investment for retirement and critical large expenses and need a different treatment than retail interest levels. At the same time, Govt cannot pay higher interest rates every time. Current low inflation and interest rate reduction is due to demonetization exercise and hence we will need to wait for 6 months to see the inflation / interest movement before call can be taken.
    1. A
      Anil Kumar
      Feb 16, 2017 at 6:15 am
      1. D
        Dheena undefined
        Feb 16, 2017 at 12:58 am
        Common mans meagre life long savings through epf snatched away and given to the likes of Ambani and Adani by Modi and Cooterie.
        1. J
          Feb 16, 2017 at 3:41 am
          If you need to reduce interest rate give an option to the subscribers on the choice of instruments to invest. Otherwise increase the interest rate offered.
          1. P
            Feb 16, 2017 at 2:09 am
            working cl are the only one who pays proper tax.....the remaining money after income tax is saved in EPF...its not like govt jobs we can bribe ,private jobs does not have security ,..the safe option for private ried cl is;br/gt;I dont understand why they want to cut rates..whatever happened to the money from demonetization. we supported because we get benefits....i could not get house loan from my ry,so i thought i can save money in PF which gives good interest ,so that i can save money......really dont know what govt is thinking in his mind...Why rich people dont pay proper tax...why ried cl always have to suffer...
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