iconimg Tuesday, July 28, 2015

If the Union Budget were to be judged on some absolute scale, then the savings and investment measures pertaining to individuals would be neither here nor there. Nothing much was done, save some tinkering with the Rajiv Gandhi Equity Savings Scheme (RGESS). Things will pretty much go on as they were.

There is a deep crisis in personal savings and the budget does nothing to address that. Savers — specially small savers — are saving less and are getting even less from their savings. The propensity to increase in equity and equity-backed mutual funds is decreasing, while fixed-income investments are earning less and less compared to the consumer inflation rate. None of these issues are any closer to being tackled.

Instead, all we have is the extension of the RGESS from one to three years. It had been clear all along that while the RGESS has the germ of a good idea, it was ill-conceived and needlessly complicated. Now, that single-use limit has been extended to three but all the other complexity remains.

None of the other changes have materialised. The section 80C limit Rs. 1 lakh is now unchanged for more than a decade and its real value has declined sharply.

And, we also have a couple of big negatives. One is the huge hike in dividend distribution tax. Whether you are getting dividends from your stock investments or your fixed-income mutual funds, the deduction at source will be 25%, rather than the current 12.5%. For those who depend on these sources will be hit hard.

The FM also spoke about taking insurance to smaller towns and villages as well as making the process easier by letting bank KYC be permissible for insurance. But, what the insurance companies are flogging are sub-par investment products disguised as insurance. It would have been far more beneficial to bring in some sort of differentiation in incentives between term insurance — which is real insurance and what actually gets pushed to customers. The easing of insurance KYC while keeping MFs KYC cumbersome is a strange anomaly.