NE BUSINESS BUREAU
NEW DELHI, MARCH 2
After paying out 8.65% interest, the EPFO had just Rs 165 crore as surplus, the lowest in many years, for the current fiscal.
The Employees’ Provident Fund Organisation (EPFO) is likely to retain the current (2018-19) interest rate of 8.65% for 2019-20, a top government official said. EPFO’s apex decision-making body, the Central Board of Trustees (CBT), headed by the labour minister, at its meeting scheduled for March 5 will take a call on the same. Following CBT’s recommendation, the finance ministry will ratify the rate to take effect, The Financial Express reported.
Keeping a little surplus for future use from the assorted interest it earns on its investment in different debt and equity instruments during the year, EPFO distributes its income to its subscribers as interest on their accumulation towards the employees’ provident fund (EPF). After paying out 8.65% interest, the EPFO had just Rs 165 crore as surplus, the lowest in many years, for the current fiscal.
The Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 makes it mandatory for all establishments having 20 or more employees earning less than Rs 15,000 monthly wage to join the EPF scheme. Others can also join the scheme voluntarily. An employee contributes 12% of the basic pay to EPF; her employer contributes 3.67% to the EPF and rest 8.33% towards the employees’ pension scheme (EPS).
Generating from monthly contribution towards the fund from its active over six crore subscribers, EPFO’s accumulated corpus now stands at around Rs 18 lakh crore. On an annual basis, it receives approximately Rs 1.3 lakh crore as subscription. The EPFO is permitted to invest its incremental accretions in debt and equity instruments in the ratio of 85:15. Since 2015, the EPFO is investing in exchange traded funds (ETFs), aimed at generating better returns. Till September 2019, it invested Rs 86,966 crore in ETFs.
The CBT is a tripartite body comprising representatives from employers, employees and the government. A prominent member of the CBT said, “Our investment in debt instruments is not yielding the desired result; but that on equity is doing well. There would be pressure on maintaining 8.65% rate of interest for 2019-20; but if fund permits, then why not?”
Even as the finance ministry does not give a single penny to the EPFO for any interest payout, it has been putting pressure on its labour counterpart to keep the interest rate under check, apprehending that with higher payout, chances of the EPFO committing a default would also be higher, and in that case, the exchequer will have to shoulder the additional burden.
KR Shyam Sundar, a professor at XLRI, said the finance ministry wants to keep the interest rate under check mainly on three reasons. “They want to align the interest rates with the market rates so that the distortion reduces, make EPF sustainable and finally, make the EPF as an unattractive fund and make the competing investments like fixed deposit and small savings competitive.”
