Thumbs up to Modi Sarkar

Experts point out that most retail investors have preferred investing in gold, jewellery, precious metals and real estate, for higher returns, than equities and other financial instruments.

June 02, 2014 9:44 IST | India Infoline News Service
The Modi Government, largely viewed as the people’s Government, has come into power mainly to tackle multiple problems of the youth, middle class and low income groups. Change is the need of the hour. The new Government, at first, has a huge responsibility of getting things back to track. A lot needs to be done in the areas of savings, investments, real estate and stock markets. Some of the areas where the common man is expecting this Government to help are create more job opportunities, help in more savings and investment. In the months to come, one can expect some policy changes in the current tax structures, tax slabs, saving schemes, tweaking existing tax schemes, increase in the exemptions, some relaxation in new venture startups and business friendly policies.

Enhance more savings
In the last few years, our savings have not been able to keep pace with the rising inflation. Most of our savings is in the negative zone on account of rising inflation. This is led to drop in household savings, mainly for the lower and middle income groups, due to low returns.

Experts point out that most retail investors have preferred investing in gold, jewellery, precious metals and real estate, for higher returns, than equities and other financial instruments.
Some of the changes that are widely anticipated, to happen soon, include a revision in the tax slabs, widening the tax base and an increase in the annual deductions. The basic income threshold of Rs 2 lakh, above which there is a liability incurred, should be revised to Rs 3 lakh. This will leave more money in the hands of people to save more.

At the same time, annual tax deductions on various investments like PF, PPF, should be increased from the current Rs 1 lakh to Rs 2.5-3 lakh. This deduction will help the common man in taking informed investment decisions and saving for the long term.

There is a need to nearly double the deduction on the interest on housing loan for self-occupied homes, which is currently capped at Rs 1.5 lakh.

Meanwhile, other deductions/exemptions on medical expense reimbursement of Rs 15,000 per year, conveyance allowance of Rs 800 per month should be increased to help people benefit.
Pranav Sayta, Tax Partner at Ernst & Young said, “There is a need to significantly incentivize the existing schemes/financial instruments. The Government should bring back the culture of saving in financial instruments and grow the equity cult.”

Sayta also believes that infrastructure bonds should be incentivized and people should be encouraged to invest in equities.
At the same time, long term saving schemes is also needed to help citizens save for the long run.

Added Suresh Sadagopalan, CFP at Ladder7, “This Government should look at coming up with lucrative saving schemes for a longer term, say with a 5-10 years lock in period, so that the common man can save for the long term.”

Existing schemes like RGESS will have to be further tweaked with minimum or no criteria attached to the product, so that everyone can qualify for it. “We need better and efficient tax saving instruments to attract more retail investors,” noted Sadagopalan.

Real estate
There is a growing optimism that the entry of the new Government will give a boost to the real estate sector, thereby making real estate assets, especially housing, cheaper for the masses.

Experts believe that pending infrastructure projects will now see faster approvals, thereby resulting in faster completion of projects. This will also create more supply and buyers will have more options at reasonable rates.

This government predominantly is known for its development models in the state which they had governed earlier, so this would certainly fuel the real estate markets and strengthen them.

Retail investors to gain from a boom in equity markets
Indian equity markets have witnessed a new bull run; ever since the BJP led Modi Government is elected. Globally, investors have started to believe that India is now a favourable destination for them as the investment is likely to pick up, growth rates will improve and interest rates are headed southwards.

With hopes of the Indian equity markets only expected to head northwards, retail investors will now benefit. In a country like India, where retail investors are hugely underinvested in equities, they will come forward to enter the market via mutual funds on a systematic investment basis.
Experts also note that the retail investor should now have a close eye on the upcoming IPO’s to reap maximum benefits out if the stock markets. Ideally, retail investors can definitely look at some sector specific companies in the real estate, cement and metals and hospitality space that will witness a lot of growth in the coming years.

Job Opportunities:
The Modi Government’s entry is a positive sentiment for the job market. Following a dry job market since the last few months, owing to an economic recession, one can now expect more job openings with better incomes.

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