The weekly personal finance call-in show, Smart Money, held by Mint along with Bloomberg TV India, focused on the Budget and how the common man will be effected. Vivek Law, editor, Bloomberg TV India, hosts the show, and was in conversation this week with Monika Halan, editor, Mint Money, and a panel of experts including Milind Barve, managing director, HDFC Asset Management Co. Ltd. These are the edited transcript of the show that was aired over the weekend on Bloomberg TV India.

Vivek: The issue is that can we encourage savings in long-term equity assets? The finance minister doesn’t seem to have done anything on that bit in the Budget. Are you disappointed?

Milind: Yes, in terms of anything very specific like retirement funds coming into mutual funds; that wasn’t seen as a big part of the Budget. However, one point that I would like to mention is that provident funds and pension funds can put money into debt mutual funds. Now, if you look at the corpus of the EPFO (Employees’ Provident Fund Organisation) and the exempted provident fund, it’s huge and they collect significantly large amounts every year and most of it or all of it, goes into debt products. That can actually open up a big avenue for the retirement money. Essentially, provident fund is retirement money. While it hasn’t come in the way you thought, you could launch a new debt fund and get new money. But if there is an opening for EPFO and exempt provident funds to put in debt mutual fund, it’s pretty much achieving the same objective of long-term money coming into debt. On the equity front, there wasn’t anything to encourage long term except of course the Rajiv Gandhi Equity Savings Scheme (RGESS) being liberalized to some extent.

Vivek: P. Chidambaram did actually take pains to explain how our savings rate has gone down. After having said that, one would have expected something more from him, isn’t it?

Milind: Yes, I really expected him to do something on section 80C, may be add more things on investments. We all keep talking about equity but I think debt is equally important when it comes to investing. I am disappointed with the fact that the dividend distribution tax on debt has been increased from 12.5% to 25%. Having said that, that people should understand that if you are a debt investor for just one year, you get indexation benefit. If you are earning 8-9% and the indexation is about 7%, that 7% is actually tax free. You pay the long-term capital gain on only 2%. Even for people who will be disappointed about the dividend distribution tax on debt funds being increased should actually look at the option of being investor for just a year. If Chidambaram achieves the deficit target for the next fiscal of 4.8%, which by pure economic theory should also reduce the current account deficit, then it should actually create the right environment and returns in the market for people to invest. At the end of the day, tax can only incentivize up to a point. If the underlying markets don’t deliver the returns that investors are expecting, then no amount of tax benefits and tinkering can get money into either mutual funds or insurance. On a broader look, you are looking for underlying markets in fixed income and equities which will give returns to investors. You would also look for the finance minister to do things which will help in generating these returns. Taxes make a difference at the margins. To my mind, I am not worried about the 42,000 people (people with more than 1 crore annual income). I would simply say that the 42,000 people might be a little unhappy.

Vivek: Would you say that there is nothing from an individual investor, consumer or citizen point of view in terms of saving money through this budget?

Monika: If you look at it specifically, then you can say “yes, there is nothing". However, if you really decode and see the subtext it says: the government really has no money to give right now because the economy is in such a tight corner that there is nothing left to give. However, to the household, the finance minister is saying: through increased opportunity it is possible that you can grow your income. He is saying that “I cannot give you anything on the taxes front but because you are middle class and you do feel that super rich in India have it very easy, I am going to tax the super rich." There will be a 10% surcharge on the income tax of those with incomes over 1 crore. The middle class is not getting any fresh exemptions or deductions except the income threshold level has been increased from 2 lakh to 2.2 lakh for those with a taxable income in the range of 2-5 lakh. He is also saying that he will give you more products and some new products to manage better. We should look very carefully at the inflation-indexed bonds. The appetite for an average Indian household for a product like this, if done carefully, is huge and it will form the core of their portfolio.

There is also 50,000 crore of tax-free bonds which are on the table for the investor. For the low-cost housing which is less than 40 lakh value of the property, there is again an enhanced deduction. He has also taxed the rich more in terms of their real estate, where they will have to pay a tax deducted at source of 1% on property over 50 lakh. However, in terms of the direct benefit to the household, there isn’t much.

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Catch the show on Friday: 08:30pm, Saturday: 06:00pm, 08:30 pm, Sunday: 10:00am, 12:30pm and 05:30pm on Bloomberg TV India.

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