To bank unbanked savings, KVP gets revival

It said the KVP was more popular than the National Savings Certificate (NSC) because of the ease of transfer and liquidity.

By: ENS Economic Bureau | New Delhi | Published: July 11, 2014 1:18 am

Almost 30 months after the Centre discontinued the Kisan Vikas Patra (KVP), finance minister Arun Jaitley announced its revival on Thursday.

“Kisan Vikas Patra was a very popular instrument among small savers. I plan to re-introduce the instrument to encourage people who may have banked and unbanked savings to invest in this instrument,” said Jaitley.

The KVP, offered by India Post till November 2011, had no ceiling on investment while the lower limit was fixed at Rs 100. While it offered an interest of 8.4 per cent, compounded half-yearly, and withdrawal is permitted after two-and-a-half years, it was not eligible for tax benefits under Section 80C of the Income Tax Act.

Experts said despite no tax benefits, it attracted many investors. “One reason for its popularity was that it allowed investors to invest in cash. However, the cash component may now be capped at Rs 50,000, in line with the limit set for other financial instruments,” said a Delhi-based financial advisor who did not wish to be named.

The Committee on the Comprehensive Review of National Small Savings Fund chaired by former Reserve Bank of India deputy governor Shyamala Gopinath, in its report submitted on June 7, 2011, had recommended that the KVP be discontinued as it was “prone to misuse, being a bearer-line instrument”.

It said the KVP was more popular than the National Savings Certificate (NSC) because of the ease of transfer and liquidity.

“In view of the recent developments on AML/CFT (anti-money laundering/ combating the financing of terrorism) front, the committee recommends that KVP should be discontinued,” the report said.

Another committee headed by a former RBI Deputy Governor Rakesh Mohan had also recommended that both the KVP and the NSC should be discontinued as their effective cost to the government was high.

“The absence of TDS and ceiling on investment, tax benefits on NSC and higher than market rate of return have posed considerable fiscal costs to the government,” the Gopinath committee had said in its report.

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