The Central Board of Trustees of the Employees’ Provident Fund Organisation (EPFO) Wednesday recommended slashing the interest rate for its 5-crore subscribers to a five-year low of 8.55 per cent for the current financial year of 2017-18 from 8.65 per cent last year.
Labour and Employment Minister Santosh Gangwar said that at a rate of 8.55 per cent, the EPFO will have a surplus of Rs 586 crore. “Hopefully, the Finance Ministry will give its nod,” Gangwar told reporters after the Board’s 220th meeting in New Delhi.
As per the estimates of EPFO’s Finance, Audit and Investment Committee (FAIC) shared at the meeting, retaining the previous year’s interest rate of 8.65 per cent would have resulted in a surplus of Rs 48 crore. An interest rate higher than 8.65 per cent would have resulted in a deficit.
At 8.70 per cent interest on principal amount of Rs 5.38 lakh crore, the EPFO would have faced a deficit of around Rs 220 crore, while at 8.60 per cent interest rate, EPFO would have earned a surplus of Rs 318 crore, as per the FAIC calculations.
Labour ministry officials said the cut comes at a time when returns on debt funds have decreased to 6.75 per cent from 7.5-8 per cent last year.
Labour ministry sources also said the reduction in interest rate is in line with advice from the Finance ministry, indicating that the idea behind an interest rate cut this year is to build a good buffer to enable a hike in EPF interest rate next year. Labour ministry officials will meet Finance Ministry officials on Thursday to convey this decision, they added.
After the EPFO decides the interest rate, it has to be ratified by the Finance Ministry.
Gangwar said they took a call keeping the volatile market scenario. “Market is so volatile that it is difficult to evaluate about future. We paid 8.65 per cent last fiscal, which had resulted in surplus of Rs 695 crore last year,” he said.
He further said that the EPFO received 8 per cent returns on its bond investments but it will be able to pay 8.55 per cent rate since it has sold some of its investments in ETFs (exchange-traded funds), adding that the EPF interest rate is higher than 7.6 per cent provided to General Provident Fund and Public Provident Fund subscribers.
The EPFO’S investments in ETFs have fetched a return of 20.65 per cent so far, Gangwar said. In January and February, the EPFO had sold Rs 3,700 crore worth of ETF units, which earned a return of Rs 1,011 crore, he added.
The EPFO has invested around Rs 38,000 crore so far in the ETFs. It had started investing in ETFs in August 2015. The equity investment limit for EPFO’s investments has been retained at 15 per cent.
On the administrative charges, Gangwar said the CBT has decided to reduce the administrative charges from 0.65 per cent to 0.50 per cent of total wages, which are paid by employers.
The Board also decided to lower the threshold for mandatory enrolment under EPFO to 10 employees from 20 at present, a move which will require amendment in The Employees’ Provident Funds and Miscellaneous Provisions Act.
Meanwhile, the Opposition Congress alleged that the government has “backstabbed honest” tax payers by lowering the interest rates.
“The government has once again backstabbed the common people and honest tax payers of the country by reducing the interest rates in EPFO holders from 8.65 per cent to 8.55 per cent….This is the second such reduction since 2014-15,” Congress chief spokesperson Randeep Surjewala said.
“In December 2017, the government cut the interest rate on small savings schemes, including Public Provident Fund, National Savings Certificate and Kisan Vikas Patra, by 0.2 percentage points for the January-March quarter. The interest rate for savings bank accounts, which was 4 per cent in May 2014 is now 3.5 per cent,” he said.
Surjewala said the government has also levied multiple bank charges, including for withdrawal of cash from ATMs for more than three times.
The government had in December announced a 20 basis point cut in interest offering on small savings schemes, including on public provident fund and National Savings Certificate for the March quarter. The interest rate on PPF and NSC came down to 7.6 per cent, while that on a 5-year and 1-year time deposit was reduced to 7.4 per cent and 6.6 per cent, respectively.