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As the fiscal inches closer to the end, the Finance Ministry is yet to give a final stamp of approval to the Labour Ministry’s decision to give 8.65 per cent return to workers on their retirement savings in 2016-17.
For over two months, the issue has been volleying back and forth between the Finance Ministry and the Employees’ Provident Fund Organisation (EPFO).
Concerned over the disparity in interest rates between the EPFO and other small saving schemes as well as the sustainability of its corpus, the Finance Ministry has asked the EPFO to explain the rationale behind the proposed rate of 8.65 per cent for PF deposits in 2016-17.
When asked, Central Provident Commissioner VP Joy said: “No decision has been taken so far. Consultations with the Finance Ministry are going on at this stage.”
Seeks informationHowever, Joy admitted that the Finance Ministry has sought certain information, including details on inoperative accounts. “We are providing whatever is being asked for,” he told BusinessLine , adding that he is hopeful that the Finance Ministry will ratify 8.65 per cent interest on EPF for 2016-17.
The return, which is lower than the 8.8 per cent rate for last fiscal, was approved by the EPFO’s apex decision making body, the Central Board of Trustees, on December 20, 2016. It has to be ratified by the Finance Ministry before it can be official notified by the Labour Ministry.
“A decision on the proposal will be taken soon. The Finance Ministry has asked the Labour Ministry to respond to our questions relating to the sustainability of the corpus and status of inoperative accounts,” said a senior official.
Sources said the Finance Ministry has asked the EPFO for details on the number of operative and inoperative accounts to ascertain how far it can sustain a high interest rate.
The EPF scheme had over 3.76 crore contributing members in 2015-16 with a total corpus of ₹4.01 lakh crore. However, the number of inoperative accounts had swelled up to 9.29 crore with total deposits of ₹40,865.14 crore by March 31, 2016.
Another concern is that a high return on PF deposits can cause a “distortionary impact”, especially when other returns are declining. For instance, the comparable Public Provident Fund and General Provident Fund have offered interests of about 8.1 per cent so far this fiscal.
Until recently, the returns in these schemes tended to mimic each other and the EPF and the GPF offered higher returns.
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