The government on Thursday slashed interest rate on deposits in Employees Provident Fund from 9.5 per cent to 8.25 per cent for 2011-12, affecting over 4.7 crore subscribers.
The cut was proposed by the finance ministry and a notification was issued by the labour ministry, official sources said. The Employees' Provident Fund Organisation (EPFO) had provided 9.5 per cent interest rate to its subscribers for 2010-11 after it found Rs 1,731 crore surplus in its books of account.
The labour ministry had recommended 8.6 per cent rate of interest for this financial year on provident fund deposits to EPFO subscribers.
According to EPFO's income projections, a provision of 8.25 per cent interest for 2011-12 would leave a deficit of Rs 24 lakh.
It had further noted that an 8.5 per cent rate of return would translate into a deficit of Rs 526.44 crore.
"Finance ministry has decided the interest rate based on what EPFO can pay," labour secretary M Sarangi said. The government decision came under sharp attack with Hind Mazadoor Sabha secretary A D Nagpal, who is also an EPFO trustee, saying it was unfair. "We will oppose this decision at the next meeting of the Central Board of Trustees," he said.
In December, EPFO's trustees had failed to decide on the interest rate for the current fiscal following sharp differences among them on the issue and had sought the finance ministry's intervention.
While the EPFO had suggested payment of interest at the rate of 8.25 per cent for 2011-12, the trade union members insisted it should be retained at 9.5 per cent.
The representatives of employers wanted the interest rate to be fixed at 8.5 per cent.