The ministry of labour and employment has recommended an 8.6 per cent rate of interest on the provident fund for 2011-12. The recommendation has been forwarded to the finance ministry.
If the recommendation is accepted, 47 million will get a lower rate of interest on their money this year.
The recommended rate of interest is lower than the 9.5 per cent the Employees’ Provident Fund Organisation (EPFO) gave its members during 2010-11. However, it is higher than the EPFO’s recommendation of 8.25 per cent.
Confirming it, a senior government official said the decision had been taken to balance financial prudence and public interest. Further, it will bring the interest earned on EPF equal to the 8.6 per cent being offered on the Public Provident Fund.
“The labour ministry has forwarded the recommendation to the finance ministry, to provide 8.6 per cent as the rate of interest this year,” the official said.
It is expected that Labour Minister Mallikarjun Kharge will soon meet Finance Minister Pranab Mukherjee to consult and take a decision.
The decision to consult the finance ministry was taken after the Central Board of Trustees of the EPFO failed to reach a consensus on how much interest rate should be paid. The matter was then referred to the finance ministry.
“The labour ministry is setting a bad precedent by not consulting the Central Board of Trustees of EPFO before taking this decision. Why can’t EPFO pay 9.5 as interest rate when most banks are offering it,” said Saji Narayanan, president, Bharatiya Mazdoor Sangh.
Earlier, the EPFO recommended 8.25 per cent as the interest rate stating that it had been forced to propose a slash in the interest rate this year, considering a shortage of Rs 510.35 crore in the interest suspense account. Also, the over-estimation of the interest income by 5.68 per cent had resulted in a hole amounting to Rs 854.13 crore from interest income.
According to EPFO’s calculations, an 8.50 per cent interest will lead to a deficit in the closing balance, amounting to Rs 526.92 crore. If, however, 8.25 per cent is accepted as the rate of interest, the deficit will be Rs 0.24 crore. An eight per cent rate of interest will draw a surplus of Rs 526 crore.
