Deposits on employees’ provident fund may continue to fetch 8.65% returns for the second year in a row in the 2017-18 fiscal, labour minister Bandaru Dattatreya told FE. “It is very difficult to speak on the interest rate for the current fiscal. But I hope the 8.65% rate could be maintained,” Dattatreya, who’s also the head of Central Board of Trustees (CBT), the highest decision-making body of the Employees’ Provident Fund Organisation (EPFO), said.
At 8.65%, returns on savings on EPF is its lowest in four years. However, it still remains the most attractive fixed-income investment option. The minister’s take on the possible interest rate is important as he had to keep aside the finance ministry suggestion, considering the falling income of the retirement fund body on its investments, of lowering the rate fixed by CBT for second successive year.
The finance ministry, on its part, has lowered interest rates on debt instruments such as PPF, National Savings Certificates, Kisan Vikas Patra and Post Office Time Deposits. In 2015-16 too, overturning the CBT’s decision to pay 8.8% interest for the year, the finance ministry had lowered it to 8.7%, but it had to roll back the decision and retain the rate at 8.8% following vociferous protests by trade unions.
The finance ministry’s apprehensions were not unfounded as the EPFO’s surplus is getting squeezed each year due to the falling returns its investments fetch. The retirement fund body was left with just Rs 409-crore surplus after providing 8.8% returns for 2015-16, compared with `1,640 crore a year earlier.
It is estimated that the EPFO would be left with a surplus of just around `200 crore after paying out interest at 8.65% from its projected income of `39,084 crore in 2016-17.
Keeping some surplus on its income on deposits, which now stand at more than `8.5 lakh crore, EPFO rewards its over 4 crore subscribers annually paying interests on their deposits.
The government doesn’t pay a single penny to pay the interest component to the subscribers. Though any decision
on interest payouts are taken by the CBT, the finance ministry notifies the final rates, as a matter of practice.
EPFO has also been under tremendous pressure to maximise its returns since its returns on investments is lower than what its investments bring in return.