Finance ministry tells EPFO to not announce interest rate without approvaltext_fields
New Delhi: The Union finance ministry has directed the Employees’ Provident Fund Organisation (EPFO), not to announce its interest rate starting from the financial year 2023-’24, without prior approval, reported The Indian Express on Sunday.
The EPFO, which operates under the Ministry of Labour and Employment, administers India's largest retirement fund, with nearly six crore active subscribers.
Provident fund accounts are mandatory for workers earning up to Rs 15,000 per month in companies with a staff count exceeding 20 employees.
A compulsory deduction of at least 12% from an employee's basic salary is directed towards the provident fund, with the employer matching this contribution.
Annually, the Central Board of Trustees of the EPFO convenes to determine the interest rate, subsequently making an official announcement. This recommendation is then forwarded to the finance ministry for endorsement.
In a communication to the labour ministry in July, the finance ministry raised concerns that the EPFO had incurred 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 this deficit as the reason for altering the interest rate announcement procedure.
Furthermore, the finance ministry has repeatedly urged the EPFO to reduce its interest rate to less than 8%, aligning it with rates offered in other schemes.
With the exception of the 8.2% interest rate for the Senior Citizen Savings Scheme, all other schemes provide lower interest rates than those offered by the EPFO.
In March, the Central Board of Trustees of the EPFO recommended an 8.15% interest rate for the financial year 2022-’23, slightly surpassing the previous year's 8.1%. The 8% interest rate provided in the prior year marked the lowest rate since 1977-’78, reports the Indian Express.
EPFO recommended an increase in interest rate for 2022-’23 despite the deficit in its books in 2021-’22, says the report.
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 an 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.
“Broad congruence between prevailing market interest rate and EPFO interest rate strengthens monetary policy transmission efforts of the Government", it stated.