The Union finance ministry has told the the Employees’ Provident Fund Organisation, or EPFO, not to announce its interest rate without approval from financial year 2023-’24, reported The Indian Express on Sunday, citing a communication between the two departments.
The EPFO, which falls under the Ministry of Labour and Employment, manages the country’s largest retirement fund with nearly six crore active subscribers.
Provident fund accounts are mandatory for workers earning up to Rs 15,000 a month in companies with more than 20 employees. At least 12% of an employee’s basic salary is compulsorily deducted to be deposited in the provident fund. The employer contributes a matching amount.
The Central Board of Trustees of the EPFO holds an annual meeting decide on the interest rate and then announces it. The recommendation is then sent to the finance ministry for its approval.
In its communication to the labour ministry in July, the finance ministry has flagged that the EPFO slipped into a deficit of Rs 197.72 crore against its projected surplus of Rs 449.34 crore for the financial year 2021-’22.
The finance ministry cited the deficit as the reason for making the changes to the interest rate announcement mechanism, reported The Indian Express, which accessed the communication through a Right to Information application.
The finance ministry has repeatedly asked the EPFO to reduce its interest rate to under 8%, in line with the rates in other schemes. Apart from the 8.2% interest rate for the Senior Citizen Savings Scheme, all other schemes have a lower interest rate than what EPFO offers.
In March, the Central Board of Trustees of the EPFO had recommended an 8.15% interest rate for financial year 2022-’23, slightly higher than 8.1% the previous year. The 8% interest rate offered last year was the lowest since 1977-’78.
EPFO recommended an increase in interest rate for 2022-’23 despite the deficit in its books in 2021-’22, according to The Indian Express. However, even with the 8.15% interest for financial year 2022-’23, the retirement fund body estimated that it would be left with a surplus of Rs 663.91 crore.
The recommendation of the interest rate hike was then sent for approval to the finance ministry, which approved the hike on July 13. The ministry, however, flagged that while the EPFO recommended the interest rate of 8.1% last year and estimated a surplus of Rs 449.34 crore, it ended up with a deficit of Rs 197.72 crore.
“EPFO is advised that in future, interest rate recommendations of CBT may be made public only after the same has been accepted by M/O Finance,” the ministry said, according to The Indian Express.
It added: “Broad congruence between prevailing market interest rate and EPFO interest rate strengthens monetary policy transmission efforts of the Government.”