Streamlining sale of savings tools

If the government decision, albeit belated, to create a national database of buyers of government-sponsored savings instruments (sanchyapatras and bonds) and seek some basic information and documents from them is implemented properly, it would surely pay dividend, in terms of payment of yield. According to a report published in this paper on Saturday last, buyers of sanchayapatras and bonds would be required from next month to submit their tax identification numbers (TINs) along with other documents and information. The provision will also be applicable in the case of the current holders of these instruments.

The latest move comes in the wake of strong allegations that in the absence of any monitoring and screening, the savings opportunity offered by the government is being largely abused by a section of unscrupulous people. For individuals, there is a limit to investment in the savings instruments. However, the higher yield rates offered for these compared to other options available in the market coupled with deduction of lower amount of tax on accrued profit has lured some people into resorting to unfair practices and making investment beyond the permissible limit.

Some unscrupulous people have invested in these tools far beyond the permissible limit in the absence of a central database. One can buy sanchyapatras from different banks and post offices well beyond the allowable limit and there is no way of knowing about one's actual volume of purchase. Besides, some people have been making 'benami' investments to cross the investment limit. Against the backdrop of such wrongdoings, there were suggestions from various quarters to create a national database of buyers of savings tools and make submission of TINs mandatory. But the government, as usual, dragged its feet and allowed some people to continue with their mischief.

There is no denying that the sale of government savings tools overshoots the annual target within first few months of a financial year because of highly attractive yield rates. Experts and bankers have been opposing the fixation of such high yield rates since this creates distortion in the financial market. Yet the government has been sticking to the rates taking into consideration the interest of small savers and the retired officials both in private and public sectors.

But the government has been counting a heavy cost due to this kind of non-bank borrowing as it is required to pay a substantial amount as profit to the holders of savings tools. However, the burden would not have been so big had the government created a database of investors in the savings scheme and plug other loopholes in the sale of the instruments.

The government cannot do away with such scheme since this is also a part of the safety net meant for the people belonging to lower and middle income classes. The problem emerges when affluent section of people and others also want to squeeze some benefit out of the scheme taking advantage of the situation. That should be stopped at any cost.