Kisan Vikas Patra

India has faced slowdown of economy our last few years. One of the effects of declining growth in economy is reduction in the savings rate. Savings rate has declined from peak of 38 percent to around 30 percent. Falling savings rate has long term and short term impact on the growth of the economy. When people reduce savings in financial assets they switch to gold and other non-financial assets. Saving in gold and other non-financial sectors like real state lead to the problem of Black money, Current account deficit etc. Government has devised various schemes to save in financial assets. Each of the available saving option has different features in terms of eligibility to invest, rate of interest, maturity period, lock-in-period, tax treatment, pledging facility, minimum and maximum ceilings etc. One of those options is Kisan Vikas patra.

Kisan Vikas Patra (KVP) – a certificate savings scheme was launched by the Government on 1st April, 1988. The scheme provided facility of unlimited investment by way of purchase of certificates from post offices in various denominations. The maturity period of the scheme when launched was 5 ½ years and the money invested doubled on maturity. The scheme was very popular among the investors and the percentage share of gross collections secured in KVP was in the range of 9 % to 29 % against the total collections received under all National Savings Schemes in the country. Scheme was reasonably popular amongst all sections of population. But committee setup under Smt. Shyamal gopinath to look into the functioning of scheme observed-

“The continued popularity of both KVP and National Savings Certificate (NSC) among the urban population who are not all small savers could be prompted by an incentive to avoid tax. As compared to NSC, KVP is more popular as it is a bearer-like certificate due to its ease of transfer. It also has an in built liquidity due to the regulated premature closure facility offered in the scheme. The absence of Tax deduction at Source (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 deposits under both KVP and NSC can be pledged as a security with financial intermediaries, including banks. The Rakesh Mohan Committee had recommended that both these instruments are quite expensive in terms of the effective cost to the Government and felt that these instruments should be discontinued to ensure an equitable and harmonious tax treatment across the full spectrum of medium term savings schemes. The Committee endorses this recommendation”

This lead to discontinuation of the KVP scheme in 2011 but government has relaunched the scheme again in 2014 in order to improve the savings and reduce investment in gold and other non-financial assets.

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