Budget 2015: Money for JAM, and kicks for free

  • Dhirendra Kumar
  • Updated: Mar 01, 2015 01:00 IST

The big picture in Arun Jaitley’s first full budget is one of simplicity. The overarching themes are self-evident: infrastructure, a new social safety net, reasonable fiscal discipline. No one can argue with that, except those who wanted a ‘Big Bang’ of some sort. This search for a Big Bang didn’t turn up much, especially because there was no preset definition for what kind of a bang would be big enough.In any case, as the Economic Survey pointed out, a sustained gradual approach would certainly work better under almost any circumstances.

I would say that the biggest bang will come in the future, from the usage of what the Economic survey calls JAM. The mass insurance scheme and the pension plan, in tandem with JDY and direct transfer of subsidies point to the creation of a social safety net that would have looked all but impossible some time ago. If this can be executed as planned, it would certainly be a long-term big bang.From a savings and investment perspective, the budget starts a shift that should have happened years ago – a move from EPF to the National Pension System. So far, we have heard an absurd situation where government employees’ pensions have been managed in a modern system by private investment managers (NPS), while private sector employees have been held hostage (in Jaitley’s own description) by the EPFO.

Now, private employees will have the option of using the NPS instead of the EPFO. While there may be some devil in the details (eg. can existing EPFO balances be moved to NPS?), the proposal has the potential to improve and enlarge the retirement savings of millions of Indians.The enhancement of the tax saving limits for the NPS means a whole new deal for retiring private sector workers. The limit on deduction on account of contribution to a pension fund and the new pension scheme increased from Rs 1 lakh to Rs 1.5 lakh.Additionally, there is a bigger deduction of Rs 50,000 for contribution to NPS under section 80CCD. Along with the attendant shift from the ESI to any other health insurance, these changes show a new, welcome thinking on allowing more efficient solutions.

Dhirendra Kumar- CEO, Value Research

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