While the new government needs to undertake a larger exercise to restructure various social sector and developmental schemes going forward, if there is one scheme that needs immediate scrapping, it is the Rajiv Gandhi Equity Savings Scheme (RGESS) that was introduced in 2012.

It perhaps best exemplifies how schemes can be devised to please the political masters and then be left to languish.

RGESS was launched to encourage the flow of savings into the capital markets and improve the latter?s depth. It was also expected to widen the retail investor base in the Indian securities markets.

Notified on November 23, 2012, RGESS was offered as a tax saving scheme, giving tax benefits to investors with an annual income less than R10 lakh (this cap was raised to R12 lakh in FY14), on investment up to R50,000, allowing a deduction of 50% of the amount invested from the annual income for that year.

And what is the outcome? As on May 31, 2014, total RGESS investments are less than R90 crore?R62 crore through the National Securities Depository Ltd (NSDL) accounts and R27.67 crore from the Central Depository Services Ltd (CDSL). It was less than R52 crore at the end of FY13?R32 crore from NSDL accounts and less than R20 crore through CDSL.

The figures speak for themselves?the scheme, announced with fanfare in the Budget, had flopped in the first year itself but has been continued with some tweaking like the increase in the income cap for eligibility under the scheme and an extension of the investment product basket. The changes, obviously, have failed to attract people. Why continue with it? It was bound to fail and there is no surprise. The RGESS is not working.

The failure was built in, given the way scheme was devised. The idea of such a scheme cropped up in the finance ministry as a measure to revitalise stock markets, and the savings of the retail investors were seen as the potential tool.

The contours were drawn but convincing the political bosses was a difficult task. Then, one of the ministry officials came up with a master-stroke! A picture of late Prime Minister Rajiv Gandhi on the front page of the presentation of the scheme did the trick, and the scheme was christened RGESS. Nobody questioned the contours or the chances of its success. This is how it became part of Budget 2012.

That the scheme was a bad one was amply clear from the response it got in the first year, but who would touch it? No UPA finance minister could have even thought of tinkering with it. When I asked a senior finance ministry official ahead of the Interim Budget presented in February, what will happen to the scheme as it was not working, he had a cryptic reply: ?You know the situation, it will go on like this till the time it can.?

The situation has changed now with the NDA government led by Narendra Modi coming to power. With greater emphasis on the end-results, schemes like MGNREGA and JNNURM are set to be reworked in due course after consultations with the Planning Commission and the states. But such time-consuming deliberations are not required in the case of RGESS.

Finance minister Arun Jaitley must announce the government?s plan on RGESS in the Budget on July 10 as this will be a clear signal on how the government is going to handle schemes that are not yielding the desired results.

The Parliamentary Standing Committee attached with the 15th Lok Sabha, while asking the finance ministry to review the scheme?s practical utility, had also suggested formulation of alternative ways to encourage savings through measures such as raising the exemption limit of R1 lakh under Section 80C of the Income-Tax Act.

Subsuming RGESS in the overall income tax exemption umbrella would provide flexibility to the retail investors to invest in equities. It will also save time and money that is being spent by the scheme managers to keep RGESS alive. The NDA finance minister needs no special courage to do this.

santosh.tiwari@expressindia.com