MARKING a clear and significant departure from current practice, the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO) has been told not to publicly announce the interest rate beginning financial year 2023-24 without prior approval from the Ministry of Finance, according to official communication between EPFO, Ministry of Finance and Ministry of Labour and Employment accessed by The Indian Express under the Right to Information Act.
The EPFO comes under the Ministry of Labour and Employment.
This comes after the Finance Ministry, in a communication to the Labour Ministry in early July, pointedly flagged the issue of the EPFO — which administers the Employees’ Provident Fund and the Employees’ Pension Scheme for its 6 crore subscribers — having slipped into a deficit of Rs 197.72 crore, as against its projected surplus of Rs 449.34 crore for FY 2021-22.
This was cited as a reason for intervening and modifying the interest rate announcement mechanism.
Indeed, flagging the deficit, the Finance Ministry also suggested that the high EPF interest rates need to be looked at. “Broad congruence between prevailing market interest rate and EPFO interest rate strengthens monetary policy transmission efforts of the Government,” the Ministry said.
Over the years, the Finance Ministry has questioned the high rate retained by EPFO and nudged it to reduce it to a sub-8 per cent level in line with the overall interest rate scenario.
Currently, barring interest rate for the Senior Citizen Savings Scheme (8.2 per cent), all other small savings instruments have a lower interest rate than that announced by EPFO.
In 2016, the Finance Ministry approved a lower EPF rate of 8.70 per cent for 2015-16, after the Labour Ministry announced an 8.80 per cent rate of interest. After trade unions protested, the Finance Ministry reverted to the initial announcement of 8.8 per cent interest rate for 2015-16. This time, though, the process itself is being changed drastically.
In March this year, the EPFO’s CBT recommended an interest rate of 8.15 per cent for its over 6 crore subscribers for 2022-23, marginally higher than 8.1 per cent for the previous year.
The CBT, a statutory body chaired by the Labour and Employment Minister, consists of a vice-chairman; Central Provident Fund Commissioner; five Central government representatives; 15 state government representatives; 10 employers’ representatives and 10 employees’ representatives.
The hike in EPF interest rate for 2022-23 had come despite the retirement fund body slipping into a deficit for 2021-22. After the 8.15 per cent payout for FY23, the EPF is estimated to be left with a surplus of Rs 663.91 crore, a statement released by the Ministry of Labour and Employment in March after the CBT meeting said.
The interest rate proposal for 2022-23 was then sent to the Finance Ministry for its approval in a letter written to Economic Affairs Secretary Ajay Seth on July 3 by Labour and Employment Secretary Arti Ahuja.
It stated that in FY 2022-23, a total Rs 90,695.29 crore was available for distribution for updating members’ accounts and after reducing the deficit of Rs 197.72 crore for the previous year 2021-22, net income of Rs 90,497.57 crore was available for distribution for 2022-23.
Sharing these calculations in her letter, she conveyed to the DEA Secretary that a surplus of Rs 663.91 crore is estimated for 2022-23 and, “therefore, (I would) request you to accord concurrence to the interest rate of 8.15% to EPF subscribers for 2022-23.”
Ten days later, on July 13, the Department of Economic Affairs, under the Ministry of Finance, approved the interest rate but underlined in an office memorandum: “Para 60 (1) of EPF Scheme requires the interest rate on accumulated corpus to be determined by the Central Government in consultation with the CBT, EPFO. Given the fact that there has been an overdrawal in the Interest Suspense Account in FY 2021-22 against a surplus projected to Ministry of Finance while the interest rate for FY 2021-22 was been fixed, EPFO is advised that in future, interest rate recommendations of CBT may be made public only after the same has been accepted by M/O Finance.”
The Finance Ministry flagged that while recommending the rate of interest for FY 2021-22 at 8.1%, EPFO had projected a surplus of Rs 449.34 crore but, in fact, had ended up with a deficit of Rs 197.72 crore.
Five days later, on July 18, the Ministry of Labour and Employment, in a letter to the EPFO, conveyed the nod as well as the guidance for future.
Echoing the Finance Ministry, it also referred to the deficit issue and said: “EPFO is advised that in future, interest rate recommendations of CBT may be made public only after the same has been accepted by M/O Finance…EPFO is therefore requested to follow guidance as directed by Ministry of Finance, which has approval of the Hon’ble Finance Minister. This issues with approval of HLEM (Hon’ble Labour and Employment Minister).”
Queries sent to the Ministry of Finance, Labour and Employment Secretary and the EPFO by The Indian Express did not elicit a response.
As per norms, EPFO’s Board holds a meeting after mid-year (November earlier and February/March in recent years) to recommend the interest rate which is then announced after the meeting.
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The Board’s recommendation is sent to the Finance Ministry for its approval. This year, the Finance Ministry cleared the EPF interest rate in July, which was one of the fastest approvals.
The decline in the Fund’s amount to a deficit in the previous financial year 2021-22 happened primarily as several exempted establishments approached the EPFO for surrendering their exempt status. A total of 83 cases were received for surrendering of exempt status, out of which five cases were placed before the CBT for its consideration and more are expected to follow in subsequent years.
Although the Ministry red-flagged the EPFO’s deficit, records show that it always achieved a higher surplus than it projected at the time of the rate announcement. For instance, for a projected surplus of Rs 700 crore and Rs 300 crore in 2019-20 and 2020-21, respectively, the EPFO attained a surplus of Rs 954.62 crore and Rs 744.86 in actual terms later.
