THE new premium prize bonds are a creative idea, and the fact that they will be registered means they will be less likely to be used for money laundering and cash hoarding. As such, they could be an interesting experiment. If interest in the prize bonds is low, we will be able to conclude that much of it comes from the holders of black money. But if demand for the new bonds is high, it will be grounds to perhaps phase out the unregistered bonds altogether and replace them with the premium bonds so as to close off one more avenue for the whitening of black money. The bonds will be useful towards this end, but if the government wants us to understand that these are instruments for documenting the economy, or getting the savings rate up, it should be prepared for some scepticism.

Getting the savings rate up to 30pc is a laudable aim, but it will take more than a glorified lottery scheme to realise this goal. As it stands, the bonds seek to get people’s attention by offering a ‘profit’, which we are supposed to believe is not the same as ‘interest’, as well as the chance of winning Rs80m as the first prize. But their requirement is that the ‘profit’ as well as the prize money will be paid into a bank account. It is not clear whether or not they will be transferable. If yes, then their documentation impact is likely to be limited, and if not then interest in the bond could be low. In any case, they will certainly play some role in mobilising white money towards savings, but the big challenge of raising the savings rate can only be met by offering large avenues, such as bank deposits or national savings schemes. At its best, the premium bond will be little more than a gimmick towards such a lofty goal, the pursuit of which will require far greater effort.

Published in Dawn, March 13th, 2017