india

Updated: Sep 24, 2019 19:05 IST

The government on Tuesday issued a formal order notifying the 8.65% interest rate for 60 million subscribers of the Employees’ Provident Fund Organisation (EPFO) in 2018-19, labour minister Santosh Kumar Gangwar said.

Gangwar, in a statement in Hindi, said that the government has approved the rate, which is “10 basis points higher” than the interest rate for 2017-18. The decision to notify interest rate for 2018-19 was pending since February 2019 mainly due to some objections by the finance ministry.

“With this decision about Rs 54,000 crore interest will be credited to accounts of approximately 6 crore subscribers in 2018-19,” he said.

Effectively, a higher rate of interest (8.65%) can now be credited into the accounts of EPFO subscribers. Until now, EPFO was crediting and settling EPF withdrawal claims of subscribers at the interest rate of 8.55%, which was approved for 2017-18. Now, subscribers will get the full interest amount credited to their accounts, government officials said requesting anonymity.

The decision was pending approval of the finance ministry, which wanted the labour ministry and EPFO to downwardly revise the interest rate.

Hindustan Times reported on July 19 that the labour ministry categorically rejected the finance ministry’s directive to reduce the 8.65% interest rate offered in 2018-19 as EPFO had sufficient surplus of over Rs 3,150 crore and could easily pay a higher interest rates compared to other savings schemes. The surplus was mainly earned through the exchange traded fund (ETF).

The EPF interest rate is determined by the Central Board of Trustees (CBT), which is the apex decision-making body. Trustees take a decision after assessing the annual returns on the investments. It is the duty of EPFO to pass on the rightful share of the subscribers. As it does not take a penny from the consolidated fund of the government of India, it is not obliged to follow the finance ministry’s dictate, officials said. The CBT is chaired by the labour minister and has representation of central and state government officials, trade unions and industry bodies.

Earlier, in a communication to the labour ministry, the finance ministry said it was worried that EPFO was offering significantly higher returns compared to similar funds managed by the central government.

In June, the finance ministry had written to the labour ministry to review its decision to offer 8.65% interest rate on two grounds; one pertained to the EPFO’s decision to invest in financially troubled IL&FS group companies that was loss-making proposition, and the other was appropriation of surplus of the previous year. Hindustan Times had reported it on June 20.