REVERSING its third Employees’ Provident Fund-related decision over a span of two months, the government on Friday announced an interest rate of 8.8 per cent for subscribers for 2015-16, higher than the 8.7 per cent ratified by Ministry of Finance.
“I am happy that finance ministry has agreed for an 8.8 per cent interest rate for 2015-16 and we will give it as early as possible. Some information gap was there. We are issuing orders, it will be notified soon,” Union Labour Minister Bandaru Dattatreya told reporters on a day when trade unions had called for a nationwide strike against the lowering of the rate.
Responding to concerns raised by the finance ministry regarding payment of interest on inoperative accounts, Dattatreya said the rate of 8.8 per cent had been decided after taking such accounts into consideration. Also, the interest rate on inoperative accounts is to be paid from April 1, 2016 onwards, the minister said.
The finance ministry had questioned the viability of interest payments for around 9 crore inoperative accounts at the cost of existing active account holders.
On March 29, the Central Board of Trustees (CBT) of EPFO had decided to allow accrual of interest for over 9 crore inoperative accounts having a principal of over Rs 35,000 crore beginning April 1, 2016, reversing the decision of previous UPA government, which had stopped interest payments on inoperative accounts in 2011.
On the issue of pending updation of EPF accounts, which was another concern raised by the finance ministry, the Labour Minister said that as of March 18, 2016, only 2.89 lakh accounts have to be updated out of total 15 crore accounts updated by EPFO annually.
The finance ministry had flagged concerns about having “sufficient cushion” in the Fund amid falling interest rates, even as the labour ministry assured them of having adequate funds and managing them in a professional manner, the minister said.
The finance and labour ministries had been caught in a tussle after the former decided to lower the interest rate, even though the Labour Minister had announced an “interim” interest rate of 8.8 per cent after a February meeting of the CBT. The board had initially recommended an interest rate of 8.95 per cent, but later settled for 8.8 per cent, which would leave EPFO with a surplus of Rs 673.85 crore.
On Monday, Dattatreya in a written reply to Lok Sabha had said that while the CBT had proposed an interest rate of 8.8 per cent for EPF subscribers, the “Ministry of Finance has, however, ratified an interest rate of 8.7 per cent.”
On Wednesday, a finance ministry official had said that “there is no plan of reversing the decision as of now”. The official also defended the ministry’s decision citing concerns over the drawdown on the surplus of last year that would adversely hit maintenance of relatively stable returns to investors for the next year in a falling interest rate scenario.
The lower rate ratified by finance ministry had been in line with the government’s move last month, when the finance ministry slashed interest rates across a number of savings schemes, including the vastly popular Public Provident Fund, the Kisan Vikas Patra, the National Saving Certificate and the five-year Monthly Income Scheme. This follows a series of rate cuts by the Reserve Bank of India, which has brought down interest rates by 150 basis points over the last 16 months.
The Centre has already backtracked on two decisions related to EPF. Earlier, on April 19, under pressure from protesting trade unions, mainly in Bengaluru, it had cancelled a notification that tightened rules for the withdrawal of EPF accumulations till the age of 58. This followed another rollback of its Budget proposal to make 40 per cent of the EPF corpus taxable on withdrawal.
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