IBEF: October 29, 2021
The finance ministry has approved 8.5% rate of interest on provident fund deposit for 2020-21 paving way for the Employees' Provident Fund Organisation to credit the interest in accounts of >60 million beneficiaries.
The push is likely to bring some cheer a week ahead of Diwali. Labour secretary Mr. Sunil Barthwal validated the development. “Approval was received from the finance ministry. It will be notified as soon as possible,” he stated.
The labour ministry has to inform the interest rate for the year before EPFO starts crediting it into the beneficiary account.
The step is anticipated to leave EPFO with a surplus of Rs. 300 crore (US$ 40.11 million) compared to the preceding financial year when it had a surplus of Rs. 1,000 crore (US$ 133.70).
The central board of trustees of EPFO, led by the labour minister, had in March this year approved the interest rate of 8.5% for 2020-21, same as the previous year. Though, the labour ministry has to obligatorily seek approval from the finance ministry on the proposed rate. The process was fast tracked after top officials of the labour ministry met finance ministry officials earlier this month to report their queries and requested them to accelerate the process.
The finance ministry has over the past few years queried the higher rate of interest declared by EPFO year after year when the rate of interest for other government schemes including public provident fund or small saving schemes was much lesser.
EPFO had pegged an income of around Rs. 70,300 crore (US$ 9.4 billion) in the previous fiscal including around Rs. 4,000 crore (US$ 534.82 million) from trading a portion of its equity investments and Rs 65,000 crore (US$ 8.7 billion) from debt.
Established on this, its central board of trustees, headed by the labour minister, had advised the interest rate of 8.5% for FY21. EPFO had retained the interest rate on PF deposits for 2020-21 same as 2019-20 despite the huge amount of Covid withdrawals from the retirement fund pool ever since the scheme was announced last year.
EPFO has an active subscriber base of > 60 million and every year it invests 15% of its annual accruals in equity and rest in debt instruments. Though, since the outbreak of Covid millions of salaried class workers have lost jobs or have been working on lowered wages persuading them to withdraw from their retirement fund kitty under the Covid withdrawal scheme.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.