The Indian government may consider setting up National Savings and Investments Authority -NS&I like the UK to issue premium bonds and also use lottery system to generate more revenues for the exchequer
Both finance minister P Chidambaram and Reserve Bank of India (RBI) governor D Subbarao, in separate talks to the media tried to calm down the public through their statements. The Finance Minister assured that there is no intention to introduce capital controls, including on repatriation.
It may be remembered that only last week RBI had announced that resident Indians could not remit more than $75,000 a year, as compared to $200,000 earlier; likewise, the non-government companies’ overseas investment has been limited to 100% of their net worth, down from 400% earlier, through the automatic route.
Investor fear continues that the US Federal Reserve may soon end its economic stimulus programme next month. And the Indian finance minister assured investors that the ‘rupee’ at its current level is undervalued.
The RBI warned the government that they should explore new avenues to increase revenues to take care of its fiscal deficit target due to poorer tax collection and rupee depreciation.
To take care of these, the government plans to seriously raise Rs40,000 crore through disinvestment in government owned companies and by disposing residual share-holding in non-government companies, they may realise Rs14,000 crore.
At the same time, attempts are already being made to increase exports, reduce imports where possible and increase indigenous production of oil, gas and coal. These are steps in the right direction.
But, what are the new measures for revenue that we can suggest, which have a proven track record elsewhere?
The first and foremost that comes to the writer's mind is for the government to consider, seriously, establishment of a National Savings and Investments Authority (NS&I), identical to what UK set up way back in 1970s. It refers to the premium bonds.
How do UK’s premium bonds operate? NS&I issues them in denomination of one British pound (£), with a minimum initial investment of £100 and up to a maximum of £30,000. However, each £1 will have a separate number (and certificate) and will be included in the monthly draw every month - 30 days after the purchase. All the premium bond prizes are free from British Income Tax and Capital Gains Tax.
These Bonds do not give any interest on your investment, and your interest, in fact, lies in being a lucky winner, from a low of £50 to a maximum of £1,000,000 month after month, all tax free, until you decide to redeem the bond!
In this lottery, the winning ticket is picked automatically by a machine, popularly known as ERNIE - Electronic Random Number Indicator Equipment. The present machine is the 4th generation advanced unit, which is also subject to an independent check on the randomness of ERNIE.
In effect, every holder, irrespective of whether he/she holds £100 worth of bonds or £30,000 have fair chance to win, except the holder of a larger number of bonds has a better chance!
What the Finance Ministry can do? It may authorize a joint venture between states of the Indian Union with the NS&I in the UK. Because of the size and population of the country, the premium bonds may be introduced in a systematic way, state by state. The benefit of funds available under the scheme may be restricted to use for the development of the State running it.
Why not consider these premium bonds as an additional revenue generator? It must be recalled that India did have prize bond system in place some 50 years or so ago, but it did not work out well, presumably due to our inadequate system in place, at that time. With our advanced knowledge and computer superiority, this may work out fine this time!
The second proposal covers the introduction of lottery schemes, like the schemes in operation, successfully, in the US, run by various federal states. Only a few weeks ago, for instance, a single lucky lottery winner was able to get the mega prize of some $450 million, almost Rs3,000 crore!
Here, unlike its British cousin, the lottery tickets are one time investment; either you win or lose! The winner has the option of lump sum payment (tax about 30%) or spread over a number of years, with instalment being paid every year. In this way, the income from the lottery is added to the annual earnings and the total is taxed. In addition, there are multiple forms of lottery conducted, almost on a daily basis, and some lotteries are interconnected nationally, where several states participate. Tickets are sold via thousands of shops, all connected through a national or state grid via the computer service!
The profits generated are substantial for the state, most of which is directed towards the promotion of education in the country.
This could be one another untapped avenue for generating huge amount of funds.
If professional help is taken from outside organizations mentioned above, there is no reason, why we cannot introduce these in India and benefit from them.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
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