The ongoing controversy regarding lowering of interest rate for Employees’ Provident Fund (EPF) subscribers to 8.7 per cent took a new turn on Wednesday with the Ministry of Finance claiming that EPF earnings in 2015-16 are not “even sufficient” to pay the lower rate.
“There was a surplus of Rs 1,604.05 crore for the year 2014-15. At the proposed rate of 8.8 per cent, this surplus would be reduced to just Rs 673.85 crore in year 2015-16. Thus, the proposed rate of 8.8 per cent seeks to draw on surplus of last year and this would adversely hit maintenance of relatively stable returns to investors for the next year in a falling interest rate scenario. The earning of EPFO in 2015-16 is not even sufficient to pay 8.7 per cent,” a finance ministry official said.
An interest rate of 8.7 per cent would leave a surplus of around Rs 1,000 crore with EPFO for 2015-16, lower than the surplus of Rs 1,604.05 crore for 2014-15, the official said.
“If 8.8 per cent is approved and given that interest has to be provided even on inoperative accounts, the EPFO may go into overdraft. Therefore, it was not prudent for finance ministry to ratify higher interest rate. There is no plan of reversing the decision as of now,” the official said. The finance ministry also questioned the viability of interest payments for around 9 crore inoperative accounts at the cost of existing active account holders. “From where would these account holders be compensated for past years when the interest earning on their investment has been used by existing active account holders?,” it said. The official added that around 3 lakh accounts are also pending for updation as on March 31, 2016.
Representatives of trade unions, however, refuted the calculations saying the CBT’s recommendation of 8.95 per cent interest rate, which was later lowered to 8.8 per cent in its meeting in February was not hurriedly taken.
“On payment of 8.95 per cent interest rate, we would have saved more than Rs 100 crore. We can afford paying 8.8 per cent. The decision was not taken in a hurry, it was a well-thought out decision,” Bharatiya Mazdoor Sangh’s general secretary Virjesh Upadhyay said. Another CBT member added that the decision to pay 8.8 per cent interest rate was taken after taking into account all considerations including interest payment on inoperative accounts.
“The income statement presented during the CBT meeting safely warranted for payment of 8.95 per cent of interest rate, which was later settled lower at 8.8 per cent. Ministry of Finance is distorting facts, it has got nothing to do with the matter. CBT is the custodian of workers’ funds,” said Employees’ representative on CBT and All India Trade Union Congress general secretary DL Sachdev.
On Monday, labour minister Bandaru Dattatreya conveyed to Parliament the finance ministry’s decision to ratify a lower interest rate of 8.7 per cent. The labour minister had in February announced “interim” interest rate of 8.8 per cent for 2015-16, lower than CBT’s original recommendation of 8.95 per cent.