DNA Money Edit: EPFO cut may hurt employee sentiments

The move by Employees Provident Fund Organisation (EPFO) to cut the interest rate on EPF to 8.55% is not entirely unexpected. But it will surely leave over six crore employees subscribed to EPFO dejected. Now the government has a task at hand of convincing the trade unions and forcing them to toe the line.

This is the third consecutive cut from 8.8% in 2015-16, the last cut being 10 basis points (bps) from 8.65% in 2016-17. Once the finance ministry clears the decision by Central Board of Trustees, which is EPFO’s apex decision-making body, it will transfer 8.55% interest in 2017-18 to the EPFO subscribers.

EPFO manages a corpus of over Rs 11 lakh crore. Currently, 15% of annual EPF savings are invested in equity market through exchange-traded funds (ETFs) while the rest goes to the debt market.

According to labour minister Santosh Gangwar, despite 8% returns it received on bond investments, the EPFO is able to pay 8.55%, thanks to the sale of some investments in ETFs. The EPFO is now widening the subscribers’ base by cutting the minimum number of employees in a unit to be mandatorily covered under EPFO’s social security schemes from the earlier 20 to 10. This could add another three crore employees under the EPFO umbrella, taking the total number of subscribers to nine crores.