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Here comes trusted Didi deposit scheme

Calcutta, May 8: Mamata Banerjee today said she was “thinking about starting a social security scheme” in which people can keep their money that will earn “proper” returns and will be safe.

The scheme is being seen as an easy political answer to the Saradha scandal but the complex economics involved in running such a project has not been explained yet. The scheme will be finalised after inviting from the public suggestions on the Internet.

In the absence of clarity, some officials wondered if the state government, groaning under a debt mountain, can afford to run such a scheme and if it has the skills needed to manage such an operation.

Mamata, who described the issue as “very sensitive” and said she had asked that her words be recorded lest they be used for misinformation, conceded that “may be we cannot give a high rate of interest” but promised that people would not be cheated.

She explained why the government has thought up the yet-to-be-named plan.

“What has happened over many years, in the name of chit funds people have been duped. People are often confused where to deposit their money for savings. They have to save funds for daughter’s marriage, son’s education, for their future. The scope of saving in post offices has reduced. People have lost their faith. They are worried and constantly looking for a place where they can go for savings…. We have thought out something.”

She spoke of the other avenues. “There are other places where people deposit their money like insurance, post offices, banks.... They go to other places too where there is promise of high return and get duped.”

The chief minister said: “We are thinking about running a scheme where people will keep the money with the government, and it will be safe, where they can get proper returns. People will not be duped because the government does not cheat people. When a government takes responsibility, people consider that they are safe. People have faith in the government.”

The proposed scheme, according to senior officials, was likely to be along the lines of recurring deposit schemes run by post offices and banks, but could offer a marginally higher rate of interest.

A senior finance department official said the state would focus on small investors who used to keep their money daily in mini-deposit accounts, which banks and post offices no longer run.

For such a scheme to come into play, a law will have to be put in place. “We will have to make a law for this,” Mamata said.

Since it will be a money bill, the President’s assent will be needed. Besides, under the Direct Tax Code being planned by the Centre, any return on investment will be taxable. If a law has provisions for taxation, it will need the Centre’s approval.

The savings scheme proposal, along with a Rs 500-crore relief fund already announced for cheated Saradha depositors, is certain to reap immediate public relations points for the government.

But the economic challenge before Mamata will be manifold.

One, the rate of interest. Although Mamata did not offer unrealistic returns, the government may be compelled to peg the interest rate between 8.8 per cent and 8.2 per cent. The band is the one within which post office schemes with tenures of one year to 10 years operate.

A purported reason for poor villagers falling for deposit firms like Saradha was the falling returns from post office schemes — a phenomenon that reflects a general trend — and lack of access to banking facilities.

If the Bengal government does not offer returns higher than the post office schemes, investors will not have any compelling reason to turn to the government project.

If the Bengal government offers rates higher than that of the post office schemes, the question arises how it will pay the depositors. Had there been spectacular economic activity in Bengal, the state could have subsidised the poor depositors.

But the state government itself is borrowing from the market by paying 8.25 per cent interest. If it offers the depositors any rate higher than this, the government will not be able to even borrow and pay the investors.

Another option does exist: hiring experienced asset management companies that can multiply wealth and repay the depositors. But such companies usually will want to deploy the funds in the market, which carries a certain degree of risk. The policies followed till now by Mamata do not suggest she will be ready for such a course.

Usually, such funds are spent to develop infrastructure and recover investments by levying user charges. For instance, if the state collects Rs 1,000 crore a year under the scheme, it can widen and develop 10 roads. In such cases, the state will have to levy user charges on these roads.

“But this appears to be tough in Bengal because of the government’s reservations about imposing taxes and acquiring land,” an official said.

The other challenge will be posed by the need for a network. The sham companies could lure depositors because agents drawing a high rate of commission used to take daily collections from the doorstep with minimum fuss and little paperwork. The post offices had vacated this space some years ago.

“The state has a total of 33,000 registered agents who can be engaged in the scheme. We can induct some of them, but it is not possible for us to offer them huge commissions like the sham companies do,” an official said.

The Bengal government may try to tap the panchayat and municipality network but its doubtful if they have the resources and sense of purpose to run such a scheme.

It was not clear if the state government would issue instruments such as bonds or debentures directly to the people. So far, only banks and financial institutions buy SDLs, or state development loans.

Some officials felt that if the government does go ahead with the scheme, it will increase its debt burden and affect credit ratings.

“We can’t afford a higher debt burden and deteriorating credit ratings, given the condition of the state’s finances. One ought to wonder why a government should participate in such a process and run what sounds like a deposit fund,” a senior bureaucrat said.

According to finance department sources, the state will have to create a separate head under the small savings directorate where the money deposited under the scheme will be transferred at regular intervals.

But the state will have to identify an institution through which the scheme can be floated. “The state could, perhaps, utilise cooperative and rural banks as it has administrative control over these institutions. But the problem is the majority of the 4,000-odd such institutions in Bengal have not been functioning properly over the years,” an official said.