FM Arun Jaitley did well to scrap Rajiv Gandhi Equity Savings Scheme; here’s why

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Published: February 4, 2017 4:08:08 AM

Only tax breaks can’t ensure investments, ease of participation needed for the success of such schemes

fiscal deficit, Narendra Modi, GST, PSUs, Advanced Budget, black money, MSMEsEven though it was introduced with much hype as one of the UPA big offering to people, the RGESS from the very beginning appeared a product that was bound to fail. (Source: PTI)

While the present NDA government is continuing with most of the big UPA schemes, including MGNREGA and Food Security Act, either in the original or in a modified form, finance minister Arun Jaitley has done well to scrap the Rajiv Gandhi Equity Savings Scheme (RGESS), announced in the 2012 Budget by then finance minister Pranab Mukherjee. The scheme was launched to ‘encourage flow of savings in financial instruments and improve the depth of domestic capital market’, but it never took off due to its rigidities and structural flaws, and was waiting to be disbanded as the interest in the scheme failed to pick up despite the tax break that it had. It allowed an income tax deduction of 50% to the new retail investors having income below Rs 12 lakh, and investing up to Rs 50,000 directly in equities or through mutual funds, with a lock-in period of three years—and the benefits could be availed only in the first three years from the time of entering the scheme.

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Even though it was introduced with much hype as one of the UPA big offering to people, the RGESS from the very beginning appeared a product that was bound to fail, and the investors’ reluctance to lap it up despite the tax break, proved the sceptics right. By 2016 end, only Rs 151.5 crore was invested in the RGESS through a total of 55,571 accounts opened under the scheme, and 27,760 had no investments. Continuing with the RGESS, therefore, had little purpose; but, it must be treated as an example that has again proved that only tax breaks don’t attract investments—the ease of participation also plays a major role in the success of any such scheme.

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