Adopt But Be Selective Unlike The KVP

It is called the KVP or the Kisan Vikas Patra. It is only appropriate to translate it into English to fully appreciate the clever use of the Hindi language to play up the two words kisan & vikas. First, it is a savings instrument devised ostensibly to provide a savings instrument to the poor peasant.  It was an invention of the Congress government more than 30 years ago. It is akin to its cousin the NSC (National Savings Certificate). Both instruments were devised to encourage people to develop the habit of saving and provide safe instruments which also ensured good returns, slightly above the rate of interest on savings bank accounts in the banking industry. Some “tax saving” attractions in the interest or amount invested in these instruments was thrown a bait. It was in an environment of limited spread of banking services in the countryside, where Post Offices could reach but banks couldn’t. It was at a time of dismally low incomes & savings. Today, the economic scenario of the country has changed for the better: incomes have grown, yielding small savings, which can be invested in either banks or a variety of funds in the market. Banks give low interest and other funds in the market enjoy very poor ratings after Sahara Sardha Chit Fund scams. The NSC/ KVP were launched to serve such need of the small investor. Over time, however, the KVP earned the reputation of a conduit for safely parking black money. The returns turned out to be negative due to high inflation and rising prices. What is required is better instruments for investing the savings out of hard earned meagre incomes rather than attractively packaged instruments that end up giving negative returns. The savings of the “poor” that the new avatar of the KVP  promises to “double” the investment in “100 months”, is high on ensnaring financial  terminology beyond the grasp of the targeted poor investor and low on genuine yield.

The reality being otherwise, the KVP is an instrument to erode the value of the money of the poor investor in real terms. It is not in the interest of either the poor or the kisan i.e. the peasant. The proceeds of the savings instrument are not going to be employed for the vikas i.e. development of the peasant in any way. It is basically money collected from the poor at almost nil interest to be provided at soft interest rates to the other developmental schemes of the government, including many schemes ending up as wasteful expenditure. It would be an economic heresy to say that the poor or the real kisan of India really has any investible savings ever in one or two crop cycles in any year.

Who, then, gains? Every politician in India has turned a farmer after independence! Every tax evader has become a farmer following the smart political class. Comparatively, politics has proved to be more profitable business than the business of traditional business or industry. The returns on investment in politics are many times higher than in business, barring exceptions on both sides. Farm incomes are tax exempt. No smart fellow has to really work the farms. They have only to procure receipts from the farm produce marketing committee as proof of income from farming. Since the farm produce marketing committee is another example of the inventive political class in valuable partnership with the clever bureaucrats, it is meant only to serve them. What could be better than returning huge agricultural income to turn illegal incomes into legal incomes and pay no tax on top of it? In local lingo it is called black money and white money, though the currency bears no such distinction. The only problem with such huge money is what to do with it? Where to invest it? Real estate? Jewellery? Fashion? Entertainment? The political, bureaucratic and business class is aware of the brand equity or public image. Any ostentatious expenditure is likely to attract adverse public notice, especially the hawks of the civil society called the journalists. They can cause upheaval in no time. Corruption is a word that the people hate without understanding how to be corrupt or what really is being corrupt worth the attention of the TV journalists. Politics survives by corruption, at least in the Indian democracy. If you are not corrupt, you are against corruption; if you are against corruption, you are not corrupt. In other words, you are either the government or the opposition. There are ways of open corruption which is legal, like investment in the Kisan Vikas Patra. All the bribe money, proceeds of crime, drug money etc. had found the KVPs the safest haven within the country in the past. That was one reason it was discontinued by the government years ago. The instrument has again been sold to the new government under Narendra Modi, which has adopted it as a small savings instrument, without proper scrutiny. There is no harm in adopting the policies of the previous government, but only so long as they are benefit the people. Alas! The KVP is not at all in the interests of the people, kisan or poor or small investors.

If the KVP were a genuinely poor people or peasant benefit instrument, the government could have used the term as 8 years 4 months instead of the sucking 100, which hides the long period of the funds getting locked. Similarly, the use of the word “double” rather than 5% or 6% or 7% annual rate of interest is enough to trick the vulnerable poor sections who are desperate to see their savings fetch them good returns. Unfortunately such financial jugglery with words is play of arithmetic skills that the poor really don’t understand. They trust the government and blindly believe that the scheme must be in their interests because it is a government scheme. The poor can never ever think of getting fooled by their own government. They have sore experience of Ponzi schemes, deposits with private companies and local money dealers. The question, therefore, is about the returns on investment. How is it any different from the Recurring Deposit or Fixed Term Deposit Schemes of the banks? In fact, the returns are better in those schemes, if the mathematical matrix is compared, but the poor sections of society lack that skill. After all, financial markets, old or new, have always thrived on this lack of skills of the poor for calculating real returns and exploited them for ages. If the government is honest, let it say it boldly that the KVP gives not more than the rate of return on savings with the banks under normal savings bank account or term account and that the interest earned is taxed. The cost of such schemes on staff and other charges is wasteful expenditure when the available savings instruments of the banks serve them better.  After scrutiny, the KVP will cease to be a good investment option for the small investor or the peasant.

If different savings instruments are substituted by single instrument through banks, it will contribute to healthy tax management. All accounts held by one individual will get clubbed by the tax authorities and levy of tax will become easier. The so called tax saving schemes as also the dirty tricks to evade tax will come to an end. In their place the government can give incentive in the form of reduced tax rates or higher exemption limit. A healthy financial system alone can guarantee an honest government, an honest society and an honest individual.

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