Bowing to employee protests for the third time in two months, the government today rolled back its decision of lower interest rate on provident fund deposits to 8.7 per cent for 2015-16 and agreed to fix it at 8.8 per cent as decided by retirement fund body EPFO.
The roll back comes on the heels of government having to withdraw an order restricting withdrawals of employers share in the employee provident fund (EPF) till an employee achieves 58 years of age. Last month, the government had to roll back a Budget proposal to tax EPF withdrawals.
The rollbacks on both the decisions followed protests from employees and their unions.
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"I am happy that our Finance Minister has agreed for 8.8 per cent interest to be given for EPF workers for 2015-16. We will issue a notification of 8.8 per cent interest rate immediately," Labour Minister Bandaru Dattatreya told reporters.
The minister clarified that the EPFO's apex decision making body the Central Board of Trustees headed by him, in its meeting held on February 16, 2016 at Chennai, recommended 8.8 per cent interest to be credited to EPF workers for the 2015-16 which would leave a surplus of Rs 673.85 crore.
The minister said that the Finance Ministry had sought clarification on interest to be credited to inoperative accounts and it was clarified that interest of 8.8 per cent was (decided) after taking into consideration the inoperative accounts also.
He also informed that EPFO updates about 15 crore accounts annually and only 2.89 lakh accounts have to be updated as of March 18, 2016.
When asked about the tussle with Finance Ministry, the minister said, "Finance Ministry advises all the ministries. When interest rates were falling they wrote a letter to us and we fixed the interest keeping that in view."
The roll back comes in the backdrop of a nationwide protest by 10 central trade unions opposing the Finance Ministry's decision to lower EPF interest rate by 10 basis points. RSS-backed Bharatiya Mazdoor Sangh had already called a protest on Wednesday.
Commenting on the development, All India Trade Union
Congress Secretary and an EPFO Trustee D L Sachdev said: "This is a very minor thing. There are larger issues which are affecting workers like contractual labour, minimum wages, price rise and unilateral labour law amendments."
He further said: "The panel of Ministers, headed by Finance Minister Arun Jaitley, has not met the trade unions since August last year. The panel was supposed to discuss all issues threadbare with trade unions."
Last month, central trade unions in a joint declaration at its national convention held in the national capital announced to hold a nationwide strike -- Bharat Bandh -- on September 2, 2016 to express their anguish.
Earlier this week on Wednesday, the Finance Ministry said the last year's (2014-15) surplus would have to be used to pay even the lower 8.7 per cent rate on EPF for 2015-16.
A Finance Ministry source said 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.
"Thus, the proposed rate of 8.8 per cent seeks to draw on surplus of last year. This would adversely hit maintenance of relatively stable returns to investors for the next year in a falling interest rate scenario," the source added.
Stating that earnings of EPFO in 2015-16 were not even sufficient to pay 8.7 per cent interest, the source 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," he said.
"The Ministry of Finance ratifies the rates on the basis of proposal from the Labour Ministry, taking into account financial sustainability and ensuring stable returns to the investors," the source said.
