Budget 2015-16: Time for financial independence

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With less than a month to go, there is a sense of anticipation from the Budget 2015-16. Our Finance Minister, Mr Arun Jaitley faces a unique challenge of presenting an economy, industry and people-friendly budget. With the emerging markets struggling and the global economy still in the recovery phase, the government will have to ensure that India is on track for high growth and reduced fiscal deficit. Which is why, it has to be a foresighted, power-packed Budget.

From now till the budget, there will be lot of commentary and discussions about what the budget should do across economic, industry, and fiscal front. I'd like to focus on the financial independence measures that should be included in the upcoming Budget through this post.

1. Rethink/redesign pension schemes
According to a recent report by CRISIL, pension schemes cover only 8% of employees retiring from the private sector. The remaining 92% have neither income security nor health insurance. This alarming statistic has put the focus on pension, yet again. Theoretically, there is National Pension Scheme and a host of insurance plans focused on pension protection for the masses. However, in reality, despite the National Pension Scheme being one of the cheapest pension products in the world, it has limited reach and awareness. Insurance pension plans are limited by regulation in terms of their attractiveness to the consumer as well as the distributor, and hence, continues to remain a well-kept secret from the people who need these products. The government needs to review the overall coverage, take bold steps in strengthening the distribution and awareness, and make these products at par with PFs and other saving products to boost their adoption. Further, the government needs to encourage retirement planning by enhancing tax exemption limits (or create a dedicated exempt category for retirement planning for approved products) and ensure no tax on the withdrawal amount or annuity income along with flexibility to buy any annuity plan in the golden years. These steps will not only ensure citizens' welfare in their later years, but also help Central and State governments cut down their future liabilities.

2. Focus on healthcare and health insurance
India's public spending on healthcare is just 1.3% of the GDP. With 75% of the population outside the health insurance ambit, the government needs to put the spotlight on health insurance. As per the latest records of the World Health Organization, patients in India pay for 58% of the total healthcare expenditure from their own pockets compared to 11% in the US. The ever rising cost of medical expenses further necessitates the key role a good health insurance scheme can play in providing adequate protection to people in the time of need. According to the Insurance Regulatory and Development Authority of India (Irda), insurance penetration stands close to 4%. Under the Health Insurance Vision 2020, the Indian government plans to cover 80% of the population, but it is easier said than done. Government would do well by showing some intent towards expanding healthcare access and clearing the insurance bill in the budget session; thereby, paving the way for additional FDI capital and multi-national interest in health insurance.

3. Encourage home ownership
According to a National Housing Bank report, more than 80% of the low-income groups and economically weaker sections in urban areas do not have access to institutional finance. These people depend on informal sources for their credit needs and, therefore, are not integrated in the formal financial market. The government should continue the additional exemption of Rs 1 lakh for the first time home buyers for 2015-16 also, and should remove the cap of Rs 25 lakh on the value of home as property prices in metro cities cross that limit easily.

4. Increase investment limits
The last suggestion is to again increase the investment limit under Section 80C of the income tax law. The reason this would help is because the household savings rate has been dipping and currently stands at ~30% of GDP. For salaried class, this move would encourage higher savings in to long-term instruments, most of which in turn, directly or indirectly, help long-term capital needs of the country.
About the author: This article has been written by Naveen Kukreja, Director, PaisaBazaar.com
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