Over 13 crore account holders, including more than 4 crore active subscribers, of the Employees’ Provident Fund Organisation (EPFO) will receive a return of 8.65% for their provident fund (PF) deposits in 2016-17. “The finance ministry has agreed to 8.65% rate of interest. Now, the communication will come. The formal discussions are over. We will immediately issue the notification and credit the rate of interest,” labour minister Bandaru Dattatreya said on Thursday. The EPFO had stopped paying interest on inoperative accounts since 2011, but the present dispensation decided to pay interest on these accounts, estimated to be 9 crore, since last fiscal.
The minister’s assurance comes as a big relief for the subscribers who were apprehending a 50 basis point deduction in the rate suggested by the Central Board of Trustees (CBT), the EPFO’s highest decision-making body, following the finance ministry’s missive to the labour ministry on the need to look at the tenability of the rate. Though any decision on interest payouts are taken by the CBT, headed by the labour ministry, the finance ministry notifies the rates. The EPFO provides interest to its subscribers from its earnings on formal sector workers’ fund without any assistance from the government.
The finance ministry’s apprehensions are not unfounded, as the EPFO’s surplus was getting squeezed each year, thanks to higher payout than income, particularly in the falling interest regime and the law liable the Centre for interest payment in case the EPFO defaults. The retirement fund body was left with just Rs 409 crore surplus after providing 8.8% returns for 2015-16, compared with Rs 1,640 crore a year earlier. Overturning the CBT’s decision to pay 8.8% interest for 2015-16, the finance ministry had lowered it to 8.7%, though it had to roll back the decision and retain the rate at 8.8% following vociferous protests from trade unions.
In December last year, the CBT had recommended pruning the interest rate for the EPFO’s 17 crore accounts to 8.65% for 2016-17, down from 8.8% in the previous fiscal. It was estimated that the EPFO would be left with around 250 crore surplus after paying out interests at 8.65% on its income projections of `39,084 crore on its deposits on surplus, amounting to an estimated Rs 8.5 lakh crore. The EPFO would have left with a deficit of Rs 383 crore had it prevailed 8.8% rate of interest on EPF deposits for 2016-17 fiscal.