Fall in household savings have had serious ramifications for our economy. Decline in savings has caused current account deficit to widen. Interest rates have remained high, making it difficult for corporates to raise money from banks and stock markets! Hence, the capex plans have been put on hold. Thus job creation has gone for a toss. And if private sector fails to create jobs, economic recovery will remain a distant dream.
Therefore an additional worry has become apparent for the new government - how to boost household savings! Seems our regulators have found panacea to this problem. Tax exemption! Yes. The regulators have urged the government to increase individual tax benefits to encourage people to save. But this solution may not be foolproof. For tax provisions can hurt the government revenues too. Not to forget fiscal consolidation remains a top priority. Therefore, it will be challenging for the government to strike a balance between these two. The government can expand the Rs 1 lakh tax exemption limit for individuals. It can also make an allocation for investments in infrastructure bonds to boost savings.