Finance Ministry seeks to reduce PF interest rate for 2019-20

Now that elections are over, the Government has indicated that the PF interest rate hiked in February, is going to be slashed; and possibly more sharply than the hike allowed just before the election

Reopresentative Image (Social Media)
Reopresentative Image (Social Media)
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NH Web Desk

Barely five months after increasing the Provident Fund interest rate for the 2018-19 financial year to 8.65% in February, ahead of the general election, the Government appears to be planning a rate cut, reported Reuters on Thursday.

A Finance Ministry memo, which Reuters claims to have seen, has apparently communicated to the Labour Ministry, which controls the Employees Provident Fund Organisation (EPFO), that the PF interest was not in line with the Fund’s performance.

The high PF interest rate in an economy with 3% inflation has kept bank rates high despite the Reserve Bank of India reducing its Repo Rates by 75 basis points since February this year. Soon after the then Finance Minister Piyush Goyal presented the interim budget, EPFO had raised interest rate for the current year from 8.55% to 8.65%.

The hike in the EPF interest rate had made it one of the most rewarding savings schemes. In 2018, the average interest rate of the PPF (Public Provident Fund) and NSC (National Savings Certificate) was 7.7%.

While this was clearly a sop for the salaried middle class, the rate hike , it was estimated, would leave EPFO with a surplus of only ₹ 151 Crore, much below the levels maintained earlier. In the previous year the EPFO was left with a balance of ₹ 586 Crore. In 2016-17 EPFO was left with a surplus of ₹695 Crore

The then Labour Minister Santosh Kumar Gangwar had then told the media, “ We have been working for the working class and this interest rate hike shows that we do respect their faith in us."


Ahead of the general election the central government had wooed the common man through various sops. While farmers benefited from farm loan waivers, the middle class benefitted from reductions in Good & Services Tax on several consumer goods and rebates in Income Tax.

But now that the election is over and BJP won a thumping majority, the Government feels no compulsion to keep the PF interest rate high. Instead, it is opting for fiscal prudence.

Ironically, the conditions that Finance Ministry is now pointing at were there in February as well. It was known then that EPFO had been forced by the Government to make controversial investment in the troubled Infrastructure Leasing and Financial Services ( IL&FS) and that it had lost money.

But the Central Provident Fund Commissioner Sunil Barthwal had then said, “as of now, EPFO has not suffered any loss due to interest or capital invested in IL&FS bonds".

Overall, EPFO manages a corpus of over ₹11 trillion. In 2017-18, it had fresh accruals of ₹1.31 trillion. In the year ending March 2019, the annual deposit is pegged at ₹1.46 trillion.

From the annual deposits, the fund manager invests 15% in equity and the rest in debt instruments, including government and corporate bonds.

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