NEW DELHI: Amid disputes erupting over lowering the interest rate to be paid on Employee Provident Fund for 2015-16, the Finance Ministry on Wednesday defended its decision, saying that the last year's surplus would have to be used to pay even the lower 8.7 per cent rate on Employee Provident Fund for 2015-16.
According to Finance Ministry, the earnings of EPFO in 2015-16 is "not even sufficient to pay 8.7 per cent interest rate." There was a surplus of Rs.1,604.05 crore for 2014-15. At the proposed rate of 8.8 per cent, this surplus would be reduced to just Rs 673.85 crore in 2015-16, the Ministry said.
However, Central Trade Unions have decided to go on nationwide agitation from April 29 to protest against "unwarranted intervention' of the Finance Ministry in EPFO affairs, against the Ministry's move to fix EPF interest rate at 8.7 per cent for 2015-16, lower than 8.8 per cent sought by Employee Provident Fund Organisation (EPFO) and 8.75 per cent paid for the previous fiscal.
Stating that earnings of EPFO in 2015-16 were not even sufficient to pay 8.7 per cent interest, the Finance Minitry said the ratified interest rate of 8.7 per cent would leave a surplus of around Rs 1,000 crore with EPFO for the year.
"This is still lower than the surplus of Rs 1,604.05 crore for 2014-15." Explaining the process, the official said that the interest rate on EPF accumulations is administered by the Labour Ministry on the recommendations of Central Board of Trustees (CBT) of EPF. "Ministry of Finance ratifies the rates on the basis of proposal from Labour Ministry, taking into account financial sustainability and ensuring stable returns to the investors," it said.
The interest income earned on nine crore inoperative accounts, having a principal of more than Rs 35,000 crore, is not distributed among them but rather distributed among existing active account holders based on a CBT decision.
"Moreover, this windfall for exiting operative accounts will not be available from next year since CBT in its recent meeting has taken a decision to pay interest for the inoperative accounts which it stopped since April 1, 2011. From where would these account holders be compensated for past years when the interest earning on their investment has been used by existing active account holders?" the official asked.
As on March 31, three lakh accounts are pending for updation, in the absence of which, it is difficult to calculate the exact liabilities towards them.