The Central Board of Trustees (CBT) marks a clear and significant departure from current practice. Employees Provident Fund Organization (EPFO) I’ve been told not to announce it publicly. interest rate It will start from financial year 2023-24 without the prior approval of the Ministry of Finance, according to official communication between EPFO, Ministry of Finance and Ministry of Labor and Employment, accessed by The Indian Express under the Freedom of Information Act.
EPFO comes under the Ministry of Labor and Employment.
This comes as the Ministry of Finance, in a communication to the Ministry of Labor in early July, raised the issue of EPFO (which manages the Employees Provident Fund and Employees’ Pension Scheme for 6 billion members) falling into the red. This was after I pointed it out. 197.72 crore as against the expected surplus of Rs 449.34 crore for FY 2021-22.
This was cited as the reason for intervening and changing the interest rate announcement mechanism.
In fact, the finance ministry pointed to the deficit and also suggested that there is a need to focus on the high EPF interest rate. “The broad congruence between prevailing market rates and EPFO rates will strengthen the government’s monetary policy communication efforts,” the ministry said.
The Finance Ministry has been questioning the high interest rates maintained by EPFO for many years and has been pushing for a reduction to below 8% in line with the overall interest rate scenario.
Currently, except for the Senior Citizen Savings Scheme interest rate (8.2%), all other small savings products have lower interest rates than those announced by EPFO.
In 2016, the finance ministry approved a reduction in EPF interest rate to 8.70% for 2015-16 after the labor ministry announced an interest rate of 8.80%. In response to protests from labor unions, the Ministry of Finance returned interest rates for 2015-16 to the originally announced 8.8%. However, this time the process itself will change significantly.
In March this year, EPFO’s CBT had recommended an interest rate of 8.15% for over 600 million subscribers in 2022-23, slightly higher than the previous year’s 8.1%.
The CBT is a statutory body chaired by the Minister of Labor and Employment and comprised of Vice-Chairmen. Director General of the Central Provident Fund. 5 central government representatives. 15 State Government Representatives. 10 employer representatives and 10 employee representatives.
The EPF rate hike in 2022-23 was done even though the retirement fund itself was in the red in 2021-22. A statement issued by the Ministry of Labor and Employment in March after the CBT meeting said that after the 8.15% disbursement for FY23, the EPF is estimated to be left with a surplus of Rs 663.91 crore.
The interest rate proposal for 2022-23 was then sent to the Finance Ministry for approval in a letter written by Labor and Employment Minister Arti Ahuja to Economic Affairs Minister Ajay Seth on July 3.
According to the report, a total of Rs 90,695.29 crore will be available for distribution for renewal of member accounts in FY 2022-23, after reducing the deficit of Rs 197.72 crore in the previous fiscal year 2021-22. Profit of 90,497.57 million rupees was available for distribution. From 2022 to 2023.
Sharing these calculations in the letter, she told the DEA chief that a surplus of Rs 663.91 billion is expected in 2022-2023 and that “therefore, an interest rate of 8.15% for EPF members. I would like to ask you to agree to this.” From 2022 to 2023. ”
Ten days later, on July 13, the Ministry of Economy, a subsidiary of the Ministry of Finance, approved the interest rate, emphasizing in an administrative memorandum: “Paragraph 60(1) of the EPF scheme requires that the interest rate on the accumulated corpus be determined.” It was decided by the central government in consultation with CBT and EPFO. Although the interest rate for FY 2021-22 has been fixed, in view of the fact that there has been an excess withdrawal in the interest reservation account for FY 2021-22 against the expected surplus in the exchequer, EPFO will The contents of the CBT recommended to make an interest rate advisory may be published only after approval by M/O Finance. ”
The finance ministry warned that the EPFO had projected a surplus of Rs 449.34 crore while recommending an interest rate of 8.1% for the financial year 2021-22, but it actually turned out to be a deficit of Rs 197.72 crore. .
Five days later, on July 18, the Ministry of Labor and Employment in a letter to the EPFO conveyed its consent and guidance for the future.
Following the example of the Ministry of Finance, the Ministry of Finance also addressed the deficit issue, stating: “EPFO recommends that in the future, the recommended interest rate for CBT may be published only after acceptance by M/O Finance…EPFO therefore requests that” with the approval of the Minister of Finance Please follow the instructions from the Ministry of Finance. This requires approval from HLEM (Minister of Labor and Employment). ”
Questions sent by The Indian Express to the Ministry of Finance, Secretary of Labor and Employment and EPFO went unanswered.
As per tradition, the EPFO board meets from mid-year onwards (before November in recent years and in February or March in recent years) and recommends interest rates which are announced after the meeting.
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The board’s recommendations will be sent to the Ministry of Finance for approval. This year, the Ministry of Finance approved her EPF rate in July, which was one of his earliest approvals.
The decline in the fund’s deficit in the last financial year 2021-22 was mainly due to several exempt establishments approaching the EPFO to waive their exempt status. A total of 83 cases regarding waiver of exempt status have been received, of which 5 have been submitted to his CBT for consideration, and more cases are expected to follow in the future.
Although the ministry had flagged EPFO’s deficits, records show that EPFO consistently achieved surpluses that were higher than expected at the time of rate announcements. For example, against an expected surplus of Rs 700 crore and Rs 300 crore in 2019-20 and 2020-21, respectively, EPFO later achieved an actual surplus of Rs 954.62 crore and Rs 744.86 crore.
