Sujith Narayanan
Every sector of the economy from financial services to agriculture along with each and every market segment in between has its own set of budget wish-list. Yet, there is one group whose interests unite them all – consumers.
The individual consumer has, on the whole, been through exceptionally trying times over the past two years, emotionally, physically and financially. India’s economic growth has been largely driven by this section of stakeholders.
To ensure strong long-term growth, it is in the interest of all stakeholders to push for the consumer’s well-being, be it in terms of savings and investments to education and wealth. There are 440 million millennials, who make up 34 percent of the population and will be the driving force behind India’s growth over the coming decades.
There are many ways in which the Union Budget 2022-23 can assist this generation in achieving its goals. Here, we focus on four aspects.
Savings
From enticing consumer products and offers to ‘Buy Now Pay Later’ schemes, the spending options that consumers have are only growing larger and louder. It's no wonder that a Deloitte study found that millennials save just about 10 percent of their income.
For starters, to bump up this statistic, the government should increase the standard deduction for the salaried taxpayers from the current Rs 50,000 to Rs 1 lakh. The pandemic resulted in the cost of living shooting up, especially household and medical expenditure. At the same time pay cuts and bouts of unemployment have decreased incomes.
The budget should also increase the limit for tax-deductible investments towards the National Pension System from Rs 50,000 to Rs 1 lakh per year. This would incentivise taxpayers to think about retirement and save for it.
Investments
Inflation breached the Reserve Bank of India’s upper limit of 6 percent in the previous fiscal year and is expected to come in just under the figure this year. A record number of demat accounts were opened and mutual fund contributions hit record highs as investors chased higher returns.
As the next logical step, the budget should nudge consumers to direct a part of their increased savings towards investments by increasing the limit on section 80C tax deductions to Rs 5 lakh from the existing Rs 1.5 lakh. This would also align with more aspirational goals.
The government should also expand the equity-linked savings scheme category under 80C to include fixed income and hybrid schemes to give more flexibility to investors. Additionally, the government should make long-term capital gains tax consistent across asset classes to simplify an investor’s tax liability and incentivise longer holding periods.
Education
Education counts as the second-largest expenditure millennials face, after necessities, according to a Deloitte study. This generation finds an increasing need for higher education and constant up-skilling in a rapidly changing work landscape.
The budget should introduce a separate tax deduction of Rs 2 lakh for investments made towards higher education, especially considering the increasing debt burden taxpayers face from higher student loans. Misuse of this deduction can be curbed by ensuring that these funds and the account proceeds are directly remitted to educational institutions.
Alternatively, this category can be included under enhanced deductions within section 80C, based on educational expenses incurred.
Housing
Even as rising real estate prices make owning a house seem like a distant goal for many, more millennials are taking advantage of decade-low interest rates on housing loans. The increased demand is in turn pushing up prices, resulting in bigger loan amounts.
That is why the current tax deduction of Rs 3.5 lakh on housing loans should be increased to Rs 5 lakh. This will have the added benefit of reviving the real estate sector, which is crucial to the economy.
Each of these measures will ultimately benefit the government in the form of a better performing economy, taking it closer to the $5 trillion target.
(The author is Co-founder of Fi)
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