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Is the New Kisan Vikas Patra Creating Holes to Store Black Money?

The Finance Minister wants Indians to save more. The press release from the fin ministry says:

The Finance Minister said that in last few years due to slower rate of economic growth, the rate of domestic savings had come below 30 % while it had once touched the peak of 36.8%. He stressed the urgent need for raising the domestic rate of savings.

This has led them to relaunch the “Kisan Vikas Patra” (translates to “Farmer Benefit Bond”). These will be issued by the Postal department. The product is simple, and the gazette notification states:

  • You buy them for Rs. 1000 (minimum), and no maximum exists (each certificate has a max value of Rs. 50,000)
  • Your money doubles in 100 months (8 years, 4 months) – the annualized rate of return is 8.7%. (this is the maturity of the KVP)
  • You can pledge the certificates for a loan
  • You can exit partially after 2.5 years, rates of return will vary slightly.
  • Low “KYC” – proof of ID and residence only. There is no need of a PAN card at application, even if the amount is more than Rs. 50,000.
  • The interest is not tax-free.

As a taxable 8 year bond, the yield is more attractive than government securities (where the current 10 year yield is 8.15%).

However, given the complexities and the fact that it’s paper based (lose it and it’s going to be very tough to get your money back) it might not be that much better than, say, a bank fixed deposit, where many banks offer better rates as well.

But we see a potential issue: The low KYC and the fact that you can give ANY amount in cash leads it to be a conduit for black money. A black money earner – in cash – has two big problems.

  • The money doesn’t earn interest, so storing it means losing money to inflation.
  • The cash is difficult to hide, since your denominations max out at Rs. 1000, storing large sums of money is a pain.

Something like the KVP might be a boon; you can put as much cash as you want in it and buy in denominations as large as Rs. 50,000 per certificate. These don’t need a KYC, and can be encashed after 2.5 years, again in cash!

This was one of the reasons the KVP was discontinued earlier, says Business Standard. But it promotes the creation of even more black money – if you can have “black” and get interest on it, then deal only in cash, no? With the KVP, it’ll be nearly impossible to detect (just as it already is with NSCs, another such savings instrument).

It would be wise to demand a PAN card for all holders that own more than Rs. 50,000 worth of certificates, and identify them in some way (using an aadhaar id or such). Otherwise, this scheme is likely to generate the wrong kind of incentive – it’s telling people that the government is happy for you to create more black money, because now, there’s a better way to store it and earn interest too.


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  • Rahul says:

    What if PAN card is mandated during withdrawal ?

  • piyush says:

    well the FM realizes its imperative to raise savings rate from 28% to 35%.. and also move savers away from gold and real estate.. this is one way to do it.. and despite the fact that is has obvious implications for black money its still a good measure… apart from this, you forget that its a great way to reach the unbanked via the post office network.. atleast people in rural areas now have an option whether they have a bank account/bank branch or not.. post office savings used to be a big portion of most peoples savings.. if i just look at how my parents finances have moved over the past 20 yrs. From large amount of post office savings, zero real estate, zero debt – to literally 0 post office savings, 80% real estate, large amount of debt…. this trend has to be reversed..
    as it is, whether there is a KVP or not those who have undisclosed income will continue that practice, cause that has nothing to do with return on savings – but tax rates. most small business owners pay very low effective tax rates, and offering 8% KVP option won’t influence them to either increase or decrease black money. but over a few years, it will have an affect on money moving from real estate/gold to financial savings. A very welcome move !!

  • Saurabh says:

    Hi Deepak,
    We have some KVP’s from past and it is impossible to take payment without showing a PAN card if maturity amount is >30000.
    There are many people from small towns, villages etc whose money is stuck because they dont have
    a PAN card.The only way out is to get a PAN card.
    Moreover as you say Interest is not Tax free, so who takes care of that? govt is not big a fool as we think them to be.
    They are suckers, this is scheme to suck in the money.
    Best Regards.

  • Krish says:

    Investing in KVP is big pain. You need to go to post office, fill the form, get the certificate and so on. The family need to keep the certificate secure for 8.5 yrs. Lot of people lost it while shifting the home and also did not know what to do when the holder died. So one has to take care of the nomination as well. At the end of maturity, you need to go to same post office to redeem. If you are in different city, one is doomed. Don’t invest on something which is not online based. Not sure why this has to be made so much difficult process wise.

  • Murty says:

    KVP was a Political haven
    Every politician had secure deposits in them
    huge number of Swiss Accounts.
    Delayed verifications
    Only three names revealed
    A month later, they found half of the accounts just ” Empty”
    The FM opens a gate
    KVP is a Great haven for the Politicians.
    Welcome to Namocracy……

  • NRS says:

    Very shallow article with no Reserach.
    There are many products already where higher rate of interest is available without PAN details: post office deposits, NSC, cooperative societies.
    Don’t think the author understood the product in the first place!

  • arvind says:

    swiss a/c comes to your door, generally all same–while depositing low kyc, while exit high kyc like mutual funds signature not matching everytime at the time of exit

  • Harsha Hegde says:

    I would say this puts the stolen money to better use, which would otherwise sit idle or be put into gold and real estate. All the talk of swiss money is a distraction. Black money is right here in India, in gold and real estate. KVP will bring such money back into the system.

  • nirav.kanodra says:

    While this might be a boon for black money (may be some things like PAN card would eliminate that).
    This is a good savings product for for the poor.
    Meanwhile for the government this does few things
    (1) Lower cost of long term financing.
    (2) there is a lot of cash in circulation (being hoarded in safe deposit boxes) and black money stored in Gold or Real estate. This money comes back in the system.
    (3) For a lot of poor people, this can be the only long term savings solution. (Bank FDs have shorter tenor)