The Central Board of Trustees of the Employees’ Provident Fund Organisation on Saturday proposed to lower the interest rate for subscribers on retirement savings scheme from the existing 8.5% to 8.1% for 2021-’22, reported the Hindustan Times.
This is the lowest interest rate on employees’ provident fund deposits in four decades, PTI reported. The last time it was this low was in 1977-’78 at 8%.
Virjesh Upadhyay, a board member of the Employees’ Provident Fund Organisation, told the Hindustan Times that the decision was based on the “current position of earnings and deposits”.
The rate proposed on Saturday will have to be ratified by the finance ministry before it is added to the balance of subscribers account.
The state-run Employees’ Provident Fund Organisation is the country’s largest retirement fund with nearly 60 million active subscribers.
Provident fund accounts are mandatory for workers earning up to Rs 15,000 a month in companies with more than 20 workers. At least 12% of an employee’s basic salary is compulsorily deducted to be deposited in provident fund, while an employer also contributes an equal amount.
Labour Minister Bhupender Yadav on Saturday said that international conditions as well the stability of markets were considered while taking the decision, reported NDTV.
“We cannot take high risk instruments as we have to keep social security and market stability in mind,” Yadav said.
The Central Board of Trustees is a tripartite body, headed by the labour minister, compromising representatives from the government, trade unions, and employers.
The decision to cut interest rate on provident fund was taken despite resistance from the trade unions, according to The Economic Times.
Congress condemns move
Congress spokesperson Randeep Singh Surjewala asked if the decrease in the interest rate on deposits was the ruling Bharatiya Janata Party’s “return gift” after winning elections in four states.
In the Assembly election results declared on March 10, the BJP won a majority in the states of Uttar Pradesh, Uttarakhand, Manipur and Goa.
In a tweet, Surjewala alleged that the income of 84% of the country’s population had decreased. “Is it right to attack the savings of crores of employees on the basis of electoral victory?” he asked.
Double impact of pandemic
The Employees’ Provident Fund Organisation, with a corpus of Rs 16 lakh crore, has felt the double blow of the Covid-19 pandemic, The Hindu reported.
On the one hand, employees initiated withdrawals in the wake of the financial distress caused by the pandemic, while on the other, the state-run fund saw its earnings reduce.
The organisation had settled 56.79 lakh advance claims amounting to Rs 14,310.21 crore until December 31, reported The Indian Express.
In September 2020, the Employees’ Provident Fund Organisation had said it will rework the interest payout of 8.5% for financial year 2019-’20 in two separate installments of 8.15% and 0.35%.
Upadhyay had then said that “there is no going back on 8.5% rate” for the financial year 2020 and that the pandemic had pushed the organisation to opt for making payment in two installments.