Finance Ministry Blinks on PF Decision – The labour ministry had tried to persuade its finance counterpart to give in and the consultations worked, said labour minister Bandaru Dattatreya.
In a third flip-flop, the government has decided to reverse its earlier decision of reducing the interest rate on Employees’ Provident Fund deposits for 2015-16 and instead keep it at 8.8 per cent, in line with the stand of the Central Board of Trustees (CBT) of the EPF Organisation (EPFO).
The labour ministry had tried to persuade its finance counterpart to give in and the consultations worked, said labour minister Bandaru Dattatreya. The CBT had recommended 8.8 per cent in February; on Monday, the minister had informed the Lok Sabha that the finance ministry was approving only 8.7 per cent — a CBT decision has to be ratified by the latter on this issue. It was probably the first such occasion when the finance ministry had so disagreed.
“The Finance Ministry has agreed and we will be issuing orders for 8.8 per cent interest rate to all employees as early as possible. Ultimately, (following) two rounds of meetings they are fully convinced and we are going ahead with the Central Board of Trustees recommendation,” Mr. Dattatreya said.
He added that the labour ministry will “immediately” notify 8.80 per cent interest rate to EPF subscribers.
Conceding that there was an “understanding gap” on the EPF rate within the government, Union Labour and Employment Minister Bandaru Dattatreya said that there were two reasons behind the Finance Ministry’s push for lowering the EPF rate.
In its reasoning on the interest rate, the finance ministry said EPFO’s earnings for 2015-16 were not enough to pay 8.8 per cent. Till now, it noted, the interest income earned on 90 million inoperative accounts, a total principal amount of Rs 35,500 crore, was being distributed among existing account holders but this would no longer be possible, owing to a recent CBT decision. The labour ministry gave an explanation for why this wasn’t quite so.
Also, said finance ministry sources, the labour ministry had clarified that the earnings in 2014-15 turned out to be more than the estimates, and were used to recommend 8.8 per cent.
As of end-March 2015, the EPFO had earned interest of Rs 2,800 crore on inoperative accounts, on which it had stopped paying interest since 2011.According to an official panel, EPFO would earn Rs 34,844 crore in 2015-16, sufficient to offer an interest rate of 8.95 per cent to the retirement fund body’s 50 million subscribers.
“We were able to explain to the ministry that we never touch that amount and, hence, have a cushion,” explained labour secretary Shankar Agarwal.
Trade unions had protested at the finance ministry’s stand; they marked Friday’s announcement as a victory.
Source: The Hindu