The Budget And Personal Finance – A Damp Squib

Each year, for the past several years, personal finance experts from various domains have been getting together and airing their wish lists with a sense of optimistic hope – and each year, they seem to be going home disappointed. This year’s interim budget was no different.

When the cheering and clamour of “no income taxes up to Rs. 5 Lakhs of income” subsided, it quickly became clear that this wasn’t really the case – the amendment was proposed to be made to Section 87A, meaning that the changes only really benefited those with incomes of up to Rs. 5 Lakhs and no more, once again giving a wide berth to the so called “middle India”.

Sure. There’s been a fiscal stimulus of sorts that’s been provided by way of the giveaway to farmers and the slightly increased cash in hand for those who are earning up to Rs. 5 Lakhs, plus the slightly increased standard deduction component; but these cannot really be termed as solid personal finance reforms, by any yardstick! The reduced TDS on fixed deposit interests is really nothing more than a feel-good factor that slightly ups the convenience component and nothing more.

Let us, for a moment, consider what a really effectual budget be with respect to personal finance. But in order to do that, we need to consider the following question – what are the most important gaps in the personal finances of most Indians, and how can the annual budget take the simple measure of nudging them in the right direction? The answer is rather simple: effective saving, effective borrowing, effective tax saving, and effective protection.

While I do not profess to be an expert in the areas of fiscal balance and monetary policy, there are surely more creative means that the government can employ to address the four above stated pillars of one’s personal finance. For instance, the absurd tax arbitrage between ULIP’s and Equity Mutual Funds could be removed. ELSS Funds could be extended to debt-oriented funds or at least debt-oriented hybrids with a lock in as well (why should tax savings be the prerogative of high risk takes only?). The now archaic 80C limit itself is in desperate need for a re-look – why can’t it be made proportionate to one’s income bracket, thereby channelling a much larger chunk of HNWI savings into the capital market through SIP-like products? What’s Rs. 1.5 Lakhs for a person earning in excess of Rs. 50 lakhs? There could be incentives, benefits and tax breaks for responsible borrowing, as embodied by high credit personal scores. The GST rate for pure protection products could be removed – or better still, a separate section outside of Section 80C could be introduced for term insurance (paradoxically, India remain woefully under-covered despite our tremendous affinity for “LIC” products!). The list of potential steps that could make the average Indian a better, smarter wealth creator whose bases are well covered, is long.

And yet, all the budget comes up with is minor tax breaks for a few limited segments of tax payers. That’s not much to write home about this year once more, with respect to personal finance reforms. Hopefully, we’ll see some real impact from the next budget!