The finance ministry has raised questions over the Employees’ Provident Fund Organisation’s (EPFO’s) recent decision to declare an interest rate of 8.55 per cent to around 200 million formal sector workers for 2017-18.
In a letter to the labour and employment ministry on March 15, the finance ministry has asked why the EPFO has not kept a higher surplus while declaring the rate at 8.55 per cent. The EPFO has contested the arguments. This is the third consecutive year when the finance ministry has asked the labour ministry to keep a higher surplus while deciding the rate of interest for EPFO subscribers. The finance ministry had pressed for similar arguments in the previous two years to overrule the EPFO’s proposed interest rate for 2015-16 and 2016-17.
The EPFO’s Central Board of Trustees (CBT), chaired by Minister of State for Labour and Employment Santosh Kumar Gangwar, had announced a five-year-low interest rate of 8.55 per cent — which would leave the Fund with a surplus of Rs 5.86 billion — for 2017-18 in a meeting held on February 21.
The CBT’s decision on interest rates needs approval from the finance ministry.
“While the finance ministry has not yet ratified the rate of interest, it has questioned the move to dip into the EPFO’s surplus funds of the previous financial year to arrive at a decision to credit interest rate at 8.55 per cent,” said a senior labour ministry official.
In its response, the EPFO has told the finance ministry that the practice has been to include the surplus of previous years at the time of deciding the interest rate. “The EPFO is not required to maintain surplus, according to the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952. We always use the surplus of the previous year while calculating the interest rate,” said the official cited above.
The finance ministry also stressed the need to create a reserve fund to ensure the government did not have to fund the losses in case the EPFO “mismanaged” its investments.
The finance ministry cited the example of the Seamen’s Provident Fund Organisation, under the Ministry of Shipping, which had suffered losses of Rs 900 million in 2006-07 and they had to be funded from the government’s coffers.
“The EPFO has never submitted any proposal to the Union government to compensate for losses due to its investments. There is no question of approaching the central government and the CBT is solely responsible for the management of the fund,” said another senior EPFO official.
After the EPFO trustees’ meet last month, Gangwar had said, “Looking at the present situation and after much deliberation, we have decided to keep the rate of interest at 8.55 per cent. We are keeping adequate surplus. We hope the finance ministry approves it.” He also said that the EPFO had kept a surplus of Rs 6.9 billion while announcing an interest rate of 8.65 per cent for 2016-17.
During the meeting, the government nominees in the CBT had pushed for keeping the interest rate at 8.5 per cent. However, trade union leaders demanded the interest rate be kept at 8.65 per cent, which would have left the EPFO with a surplus of Rs 480 million.