A key feature of the Kisan Vikas Patra (KVP), launched today (18 November) by Finance Minister Arun
Jaitley with the aim of boosting the savings rate and enabling the poor to
avoid Ponzi schemes, might well be its covert attractiveness for small-time
black money games in its proposed new avatar.
Reason:
a key feature of the new KVP, which will be available in denominations of Rs
1,000, Rs 5,000, Rs 10,000 and Rs 50,000, is that it will have no ceiling on
the amount you can invest. A PTI report quotes Jaitley as saying that the
product would be a bearer instrument, with the certificate not carrying the
owner’s name.
While
the Press release yesterday announcing the KVP’s relaunch seemed to suggest
that normal KYC (know your customer) norms will apply to schemes sold through
post offices, since the certificate will not carry any name on it, once sold, it
becomes an anonymous instrument once issued.
It was precisely
this feature of the scheme in its earlier avatar that caused the UPA to wind it
up in 2011. It was being used for
laundering black money.
Given
its extended maturity period – eight years and four months to double in value,
which gives it an effective annual interest rate of 8.7 percent – KVPs can
circulate almost like money in the economy. The only requirement would be that
at maturity it would have to come to the post office where it is registered,
and possibly surrendered by the last buyer.
Since
the scheme allows holders to transfer the certificate any number of times and
also from post office to post office, it effectively becomes a form of
currency.
Among
other things, KVP will serve as a substitute for gold by being freely
transferable and by having no investment limit. It is not clear whether post
offices will track large investments, in case they are made.
KVPs
could stimulate savings in rural areas. But they are more likely to be used as
a repository for the laundering of money during their lifetimes – though this
might need some post office connivance, given KYC requirements.
Rs
1 crore invested in KVPs of the face value of Rs 50,000 each will involve the
creation of only 200 certificates. Not a very big pile and very portable for
black money holders.
At
8.7 percent interest, the return compares well with the highest State Bank
fixed deposit rate of 8.75 percent (for non-senior citizens).
Since
it is a bearer certificate without limit, KVPs are likely to be more popular
with the better off than just the poor. In a falling interest rate environment
over the next few years, KVPs might well be sold at a premium as they get
transferred. If rates come down, KVPs will even draw some of the money that
goes into gold as an inflation-hedge.
KVPs
are likely to be a big hit – once again.
