Stung by all-round criticism, the government today rolled back its decision to 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, the third EPF-related roll back since March.
"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 Finance Ministry, which had previously rejected retirement fund body EPFO's decision to provide 8.8 per cent interest and fixed 8.7 per cent rate for 2015-16, reversed its decision after new data on EPFO earnings came to light, sources said.
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The Finance Ministry ratified the interest rate of 8.7 per cent on grounds that there were apprehensions about use of previous year's surplus funds and non-provisioning of enough amount to meet liabilities of inoperative accounts.
The decision of Finance Ministry was based on pure arithmetic calculation and in the interest of all the members of EPFO, they said.
During subsequent discussions, the Labour Ministry clarified that the earning in 2014-15 turned out to be more than the estimates and the same was used to recommend 8.8 per cent interest rate.
Further, it was clarified that EPFO is doing separate provisioning for possible principal and interest payouts on inoperative accounts and the same is not disbursed among active members.
This, sources said, led to the Finance Ministry ratifying 8.8 per cent interest. But the ministry has advised the Labour Ministry to create a reserve fund for future which may help protect workers from interest rate shocks in a regime of falling interest rates.
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.
