Tax sops on sav­ings will aid growth

Hindustan Times (Patna) - - FRONT PAGE -

In­dia’s 12th Five-Year Plan (2012-17) was ap­proved on De­cem­ber 27, 2012, tar­get­ing an av­er­age growth rate of 8% dur­ing the Plan pe­riod with em­pha­sis on the in­fra­struc­ture sec­tor. Ac­cord­ing to the Plan doc­u­ment, an es­ti­mated $1 tril­lion ( R100,000 crore) is re­quired to fund projects to build high­ways, ports, air­ports and rail­ways. Apart from for­eign di­rect in­vest- ment (FDI), it may be pos­si­ble to meet the fund­ing re­quire­ment in in­fra­struc­ture through domestic sav­ings, of which house­hold sav­ings form a cru­cial com­po­nent.

In­dia has one of the high­est house­hold sav­ings rate glob­ally. Gross domestic sav­ings (GDS) as a per­cent­age of gross domestic prod­uct (GDP) in In­dia was last re­ported at 30.31 in 2011, ac­cord­ing to a World Bank report pub­lished in 2012. The Plan­ning Com­mis­sion has pro­jected a sharp in­crease in In­dia's GDS dur­ing the 12th Plan (2012-17) in the range of 36.2-37%.

Em­ploy­ees can be mo­ti­vated for chan­nelis­ing their sav­ings through var­i­ous tax in­cen­tives. At present, sev­eral in­vest­ment schemes are clubbed to­gether for claim­ing an over­all tax de­duc­tion of up to R100,000 in a tax year un­der Sec­tion 80C of the In­come-tax Act (ITA). It is time to take a relook at this limit and con­sider in­creas­ing the same in the up­com­ing Bud­get. Ad­di­tional tax sops (over and above the limit of R1 lakh avail­able un­der Sec­tion 80C) in the coming bud­get for in­vest­ment in the Na­tional Pen­sion Sys­tem (NPS), life in­surance schemes and in­fra­struc­ture bonds could be a wel­come step in chan­nelis­ing the sav­ings and con­tribut­ing to­wards the coun­try’s growth. Tax de­duc­tion of up to R20,000 for in­vest­ments in long-term in­fra­struc­ture bonds was sur­pris­ingly with­drawn in the last Bud­get. Since th­ese bonds were a means of chan­nelis­ing house­hold sav­ings di­rectly into in­fra­struc­ture projects, the government may need to eval­u­ate rein­tro­duc­tion of th­ese bonds in the up­com­ing Bud­get, per­haps with a higher limit. Sim­i­larly, a well-reg­u­lated pen­sion and in­surance mar­ket can go a long way in en­cour­ag­ing long-term house­hold sav­ings. In­dia does not have a very ro­bust so­cial se­cu­rity scheme as com­pared to other coun­tries. Pen­sion funds cur­rently are not al­lowed to in­vest in in­fra­struc­ture. It may be re­called that the Deepak Parekh Com­mit­tee on In­fra­struc­ture Fi­nanc­ing, in 2007, rec­om­mended that in­surance and pen­sion funds be al­lowed to in­vest in longterm in­fra­struc­ture funds.


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