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Does EPFO really have enough money left for the year after IL&FS? FinMin wants to know

Does EPFO have sufficient surplus left for honouring this year's interest rate? The jury's still out.

ET Online|
Updated: May 07, 2019, 02.19 PM IST
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Does EPFO really have enough money left for the year after IL&FS? FinMin wants to know
EPFO's exposure to IL&FS stands at Rs 574.73 crore, according to the estimates of the Standing Committee on Labour.
The Finance ministry and Labour ministry are crossing swords yet again, this time over a matter that has kept India hooked ever since the IL&FS story broke.

FinMin wants to know whether or not the EPFO has sufficient surplus left for honouring the 8.65 per cent interest rate recommended for 2018-19, an Indian Express report has revealed.

The EPFO board had in February recommended a hike in the interest rate — the first increase in last three years — to 8.65 per cent for 2018-19 from 8.55 per cent in 2017-18, which was a five-year low.

The interest rate had been cut in 2016-17 to 8.65 per cent from 8.8 per cent in 2015-16.

As per norm, the Finance ministry ratifies the interest rate after EPFO's board has recommended it. Post FinMin's nod, the I-T department and Labour ministry notify the rate, after which EPFO directs its field offices (currently more than 120) to credit interest amount to the accounts of its subscribers.

Loaded questions galore
According to the story, the Finance ministry's questions include how much exposure EPFO had to IL&FS and other such risky companies, and more importantly, if any of these investments have gone sour.

In the event of a default, the government will have to bear the onus of paying up the promised interest rate to over six crore active subscribers of EPFO. That is the reason why Finance Ministry wants a due diligence done on EPFO's books, Indian Express quoted an official as saying.

The raise in the rate would yield an interest higher than most of India's small savings instruments — something that has lent added significance to the matter.

Finance ministry's questionnaire, sent to the Labour Secretary last week, brought to light a peculiar anomaly in EPFO's accounts that has continued over the years. The "surplus" after payout of EPF interest rates is shown only in EPFO "estimates", but not in the "actuals".

In the 2016-17 account of EPFO (the latest year for which audited data is available publicly), there is an entry on "income over expenditure" on a cumulative basis. That head, however, does not provide any specific detail.

This curious phenomenon is precisely what FinMin's questionnaire wants explained. Quite a few rounds of discussions between the two ministries have already been held on the matter, but these have led to "less than sufficient" clarification, said the report.

The numbers game post IL&FS
EPFO's exposure to IL&FS stands at Rs 574.73 crore, according to the estimates of the Standing Committee on Labour. The exposure of exempted companies — those who operate their employee accounts on their own — is additional to the amount mentioned in the estimates.

Any losses to the subscribers in the event of an IL&FS-type exposure going bad "are made good from the surplus", the Labour ministry had said in reply to a question by the Standing Committee on the matter.

At an 8.65 per cent interest rate the estimated suplus would be Rs 151.67 crore, a PTI report said citing EPFO estimates made public in February. The surplus would stand at Rs 771.37 crore if EPFO were to retain the earlier rate of 8.55 per cent. If in case EPFO opted for 8.7 per cent — a higher-than-recommended interest rate — it would cause a deficit of Rs 158 crore. That is the reason it decided to keep the interest for 2018-19 at 8.65 per cent, PTI said.

In comparison, EPFO had a surplus of Rs 586 crore left in 2017-18, the financial year for which it had paid a 8.55 per cent interest to its subscribers.

The Labour ministry has not yet replied to Finance Ministry’s questions. Indian Express' queries to the ministry did not elicit any response, the report said.

All calculations are correct, the story quoted an EPFO official as saying, who also said the method in question has been followed for two decades. About the speculated blow from IL&FS, the official acknowledged Finance ministry's questions but said it should not be worried since nothing has happened so far.
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