JOIN USThe Kisan Vikas Patra (KVP) scheme which has been relaunched by the government is unlikely to meet its stated objectives and may do more harm than good. The government wants to improve the savings rate which has fallen from over 36 per cent to below 30 per cent in the last few years. It also wants to provide a reliable savings instrument for ordinary people who have been victims of many ponzy schemes and other illegal plans.
The targeted beneficiaries are people from rural areas and the poorer sections who do not have bank accounts or access to many financial instruments. There is hope that it will provide an alternative to investment in gold. Since its name is familiar and operation simple, it is expected that it will become popular. But the design and features of the scheme do not support these aims and there is merit in the argument that it will become more a vehicle for black money than an instrument of small savings.
The return from the KVPs is 8.7 per cent which is lower than that from fixed deposits in banks, and so it will not be attractive to most investors. They have a lock-in period of 30 months while bank deposits yield more in a shorter period. The long period of maturity, with the investment doubling in 100 months, may not be very inviting. There is no tax benefit to be derived from investment in KVPs. But there are features which will make them attractive to those who want to deploy unaccounted money into it. There is no need to produce the buyer’s PAN or to reveal the source of funds when KVPs are bought. The Know Your Customer (KYC) norms may not be strictly adhered to in the post offices where they will be sold.
They may not matter also because the patras can be freely transferred from person to person like currency any number of times. They will not carry the names of the original buyer or subsequent sellers and buyers at any time. So it may not be possible to trace them at any stage. There is also no limit on investment.
If it is meant for ordinary investors, a limit like in the case of Public Provident Fund would have made sense. These features may tempt people with black money to invest in the patras to launder untaxed wealth and income.
The Kisan Vikas Patras were originally launched in 1988. The UPA government withdrew the scheme after criticism that it was being widely used to convert black money into white. It is inexplicable that it has been relaunched with more scope for misuse. There should be better safeguards against misuse if the scheme should achieve its stated aims.