Labour ministry, EPFO flay finance ministry decision to cut EPF interest rate

The Employees' Provident Fund Organisation (EPFO) and the labour ministry are contesting the finance ministry's decision to lower the rate of interest on employees provident fund (EPF) savings for the 2015-16 fiscal to 8.70 per cent from 8.80 per announced by the Central Board of Trustees (CBT), EPFO's highest-decision making body.

Labour minister Bandaru Dattatreya has also sought Prime Minister Narendra Modi's intervention to address the trade unions' concerns over the finance ministry's decision to prune EPF interest rate.

The finance ministry on Monday conveyed its decision to keep the EPF rate at 8.70 per cent to the labour ministry, citing what the labour ministry said, mis-placed reasonings.

According to the finance ministry, EPFO would be left with a surplus of Rs1,062 crore in 2015-16 if the interest rate were to be retained at 8.70 per cent, but the surplus would decline to Rs673 crore if the CBT recommendation was accepted.

''It would be advisable that a higher surplus is maintained in the year 2015-16, so as to facilitate maintaining a reasonable rate of interest in case of decline in the returns on investment in the coming year,'' the finance ministry said in its letter dated April 18 to the labour ministry. ''EPFO has been keeping a portion of its income as surplus of income over liability,'' the finance ministry pointed out.

EPFO, however, said its central board of trustees (CBT) had already factored in the decision to credit interest on 92.3 million inoperative accounts while announcing the interest rate in February.

The finance ministry also said that 28.9 million EPF accounts were yet to be updated as of 18 March 2016. The EPFO contested this also, stating that only around 3 lakh accounts were to be updated per latest records.

While announcing interest rates for 2014-15, the EPFO had estimated a surplus of Rs.242 crore. However, audited accounts later found the surplus stood at Rs.1,604 crore.

The finance ministry also objected to the 8.8 per cent return on PF savings indicating it was out of sync with the lower interest rate-regime introduced on schemes such as the Public Provident Fund from 1 April.

It may, however, be noted that the returns on these schemes are administratively fixed, while EPF rate is determined by the income from its investments.

Meanwhile, all central trade unions, barring the RSS-affiliated Bharatiya Mazdoor Sangh, have decided to hold demonstrations on 29 April against the finance ministry's decision.