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Govt goes back on EPF rate cut decision, fixes interest at 8.8% vs 8.7%

The government went back on its decision after trade unions decided to go on a strike to protest the move.

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Stung by all-round criticism, the government has rolled back its decision to lower interest rate on provident fund deposits to 8.7% for 2015-16 and agreed to fix it at 8.8%, the third EPF-related roll back since March.

"I am happy that our Finance Minister has agreed for 8.8% interest to be given for EPF workers for 2015-16. We will issue a notification of 8.8% interest rate immediately," Labour Minister Bandaru Dattatreya told reporters.

The Finance Ministry, which had previously rejected retirement fund body EPFO's decision to provide 8.8% interest and fixed 8.7% rate for 2015-16, reversed its decision after new data on EPFO earnings came to light, sources said.

The Finance Ministry ratified the interest rate of 8.7% on grounds that there were apprehensions about the use of previous year's surplus funds and non-provisioning of enough amount to meet liabilities of inoperative accounts.

The decision of Finance Ministry was based on pure arithmetic calculation and in the interest of all the members of EPFO, they said.

During subsequent discussions, the Labour Ministry clarified that the earning in 2014-15 turned out to be more than the estimates and the same was used to recommend 8.8% interest rate.

Further, it was clarified that EPFO is doing separate provisioning for possible principal and interest payouts on inoperative accounts and the same is not disbursed among active members.

This, sources said, led to the Finance Ministry ratifying 8.8% interest. But the ministry has advised the Labour Ministry to create a reserve fund for future which may help protect workers from interest rate shocks in a regime of falling interest rates.

The roll back comes on the heels of government having to withdraw an order restricting withdrawals of employers share in the employee provident fund (EPF) till an employee achieves 58 years of age. Last month, the government had to roll back a Budget proposal to tax EPF withdrawals.

The rollbacks on both the decisions followed protests from employees and their unions. 

The Labour Minister clarified that the EPFO's apex decision-making body the Central Board of Trustees headed by him, in its meeting held on February 16, 2016, at Chennai, recommended 8.8% interest to be credited to EPF workers for the 2015-16 which would leave a surplus of Rs 673.85 crore.

The minister said that the Finance Ministry had sought clarification on interest to be credited to inoperative accounts and it was clarified that interest of 8.8% was decided after taking into consideration the inoperative accounts also.

He also informed that EPFO updates about 15 crore accounts annually and only 2.89 lakh accounts have to be updated as of March 18, 2016.

When asked about the tussle with Finance Ministry, the minister said, "Finance Ministry advises all the ministries.

When interest rates were falling they wrote a letter to us and we fixed the interest keeping that in view." The roll back comes in the backdrop of a nationwide protest by 10 central trade unions opposing the

Finance Ministry's decision to lower EPF interest rate by 10 basis points. RSS-backed Bharatiya Mazdoor Sangh had already called a protest on Wednesday.

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