New Delhi: Wage cuts and massive lay-offs by management citing losses due to pandemic-induced lockdown have not stopped the Narendra Modi government from dealing another blow to organised sector workers. There are reports that the declared interest rate of 8.5% for FY20 on PF deposits of six crore subscribers may be slashed further, citing declining returns on investments made by the retirement fund body, EPFO.
In March, the Central Board of Trustees (a tripartite body of government, employer and employee representatives) of the Employees’ Provident Fund Organisation (EPFO) had declared and 8.5% interest rate on PF deposits for FY20, lower than 8.65% in FY19. Some trade unions, however, decried the move, saying it was unilateral as they were not involved in the decision-making.
However, on Saturday, media reports suggested that the Centre is mulling a further slash in interest rates, which could deal a big blow to workers’ only social security blanket.
Reacting to these reports, labour experts and trade union leaders have believe that the reported move by the government is in line with other policy decisions of the Centre that are driven by the ‘market’ growth fixations – the first target of which often becomes the social security arrangements in a country that are meant to protect its workforce.
Saurabh Bhattacharjee, who teaches labour law at National University of Juridical Sciences in Kolkata, questioned the “ideological lens” of the Modi government through which it views the EPF scheme.
“If it is being viewed as a social security scheme then the government must come forward and pump in money into it, especially in times of crisis. However, if it is being looked as an instrument of financial savings, then it is sure to be affected by the market vicissitudes,” he told NewsClick.
Over the years, it is only becoming clearer that the latter view holds more weight during the decision-making processes, Bhattacharjee added.
With cash flows taking a hit in light of the novel coronavirus outbreak, the final decision on the interest rate will be taken by finance, investment and audit committee (FIAC) of EPFO in the coming days to assess its ability to pay the 8.5%– a seven-year low rate.
The rates have not yet been ratified by the Finance Ministry, after which Labour Ministry can notify it, Economic Times reported.
Incidentally, last year the CBT had made its recommendation in February but the rates were notified six months later, in August.
While noting that the scheme, despite its flaws, cushioned the pandemic blow for employees covered under it, Bhattachrajee said: “This will be a major blow (rate cut) to the workers – especially those who belong to the private sector – for whom EPF, along with ESI (Employee State Insurance), are the only effective social security scheme.”
Companies that employ more than 20 persons are covered under the ambit of this scheme.
In March, the EPFO had also allowed these formal sector workers to withdraw a non-refundable advance from their retirement savings to sustain during the COVID-19 triggered lockdown. As many as 8.2 lakh members, as a result, withdrew more than Rs. 3,000 crore.
In another move, the government had also agreed to pay the total share of the contribution for certain categories of employers, under its PM Gareeb Kalyan Yojana, for a period of six months, starting March.
In May, the Centre announced a 2% reduction – from 12% to 10% – in the statutory fund contribution of both employer and employee, covered under the scheme, for the next three months – claiming that this would result in more income in the hands of employees.
Terming this as a “fraud”, Tapan Sen of the Centre of Indian Trade Unions (CITU), said: “On the one hand, the government is liberalising rules to allow people to use EPF accumulation, while on the other hand, it is reducing the accumulation in a recurring manner.”
Explaining how the reduction in interest rates will only benefit the employer, Sen said: “The EPF contributions are part of the wage packet and do not ‘belong’ to the employer. If contributions have decreased, this only mean that employers are relieved of their obligation.”
As far as benefit to employees is concerned, Sen said these compulsory savings were made to protect employees after retirement and thus should not be tampered with.
“Initially, the contributing rates were only 8.33% of the wages. It was the trade union movement, and collective struggle of the workers that forced the government to increase this to 12%,” he said.
Sen further accused the government of “stripping the EPF scheme of its essence” by allowing “speculative investments”. In 2015, the Modi government allowed the EPFO to start investing in exchange traded-funds – for the first time. The asset allocation of EPFO, that holds a corpus of nearly Rs 11 lakh crore, was further opened up to the vagaries of equity markets with its threshold level increasing to 15% in 2018 – from 5% in 2015.
“On the face of it, provocative statements are made to suggest high returns on such investment. However, in the end, that is not the case,” Sen said.
Bhattacharjee tended to agree with Sen on the equity exposure. “Subjecting such funds to financial markets makes social security much more insecure. The only beneficiary of such moves are the market players – who are eyeing EPF’s huge surplus corpus. The workers will bear the brunt,” he said.
Amarjeet Kaur, general secretary of All India Trade Union Congress (AITUC), also accused the government of making a “mockery” of tripartism since no meeting of CBT – a statutory decision making body – was called before taking aforementioned decisions.
“These are the unilateral decision of the Centre, aimed at making life difficult for workers. The stakeholders have not been consulted, even though a virtual meeting could have been called,” she said.
The last meeting of CBT involving representations from both central trade unions and employers’ body was held in January this year, she added.