GO GOA GUCCI
Pragya Panda
The Recent Budget pushed for the new tax regime whereby individuals with an income of Rs 7.50 lakh do not have to pay any income tax considering the standard deduction of Rs 50,000. It sure is a welcome move, as it reduces the overall tax burden for middle income group, but it comes with a price.
In a world of FOMOs and YOLOs, where the Gen-z believes in living each day to the fullest and spending on things that they love, tax saving investments were a form of forced savings. For example, a person earning an income of Rs 10 lakh had to invest around Rs 2.50 lakh to save on taxes. But now this is available for free spending. True, taxes should not be used as an instrument to force savings, but without any incentives, savings will suffer.
To begin with, this investment created a habit of savings for the new generation. Since these were long term investments, they could see the returns at the end of the term, and this reinforced the preference of savings and investing for a longer term. Further, with insurance penetration being less than 5 per cent, under the garb of tax savings, people invested some amount in insurance which otherwise seems like an unnecessary expense. Simple term plan is still not preferred as the current generation believes there is no return. In that case, taking away the incentive will only deter them venturing into it.
Further, studies have shown that middle class spending has risen consistently while savings as a part of GDP remains low. According to a report by Motilal Oswal Financial Services, India’s gross domestic savings rate has fallen to a 19 year low of 26.2 per cent of GDP in the first half of fiscal 2022-23. This rate was augmented, a bit by the forced savings. With this new tax regime, this may too fade away.
In a world of the LVs, GUCCIs, fast-changing fashion, exploring new places and letting off steam at pubs, without any incentive, young India wont save. Buying the latest Prada shoes is necessary, retirement corpus can always wait.
Without any social security benefits, saving is extremely important. It will only lead to increased consumerism. India cannot afford a high consuming economy with no savings. The new Indian middle class shoulders the responsibility, to save and invest wisely. The hope is but meagre, given the current spending habits.
