Govt can see the vision of directing $ 10,000 Cr of household savings into the capital markets over the next 5 years

by Mr. RAJIV BAJAJ, Bajaj Capital

A helping hand from the central government can see the vision of directing $ 10,000 crore (about Rs. 6,20,000 Crore of household savings into the capital markets over the next five years achievable.

We stand today at an inflection point in the Indian economy. With every household set to get a bank account, every such household can also be made to create wealth for itself.

One of the ways of achieving this is to channelise a part of household savings into capital markets. The huge untapped opportunity for the economy is well-known.

However, a robust economy is always built on sound capital markets. In the last 5 years, there has been a sharp erosion in savings and interest of Indian households in capital markets. The task at hand, should be to create opportunities for them to participate in the growth story of the country.

The bigger vision should be to bring in $100 billion of domestic household savings into the capital markets in five years. At an estimate, this would be a realistic 6% of incremental household financial savings in the next 5 years.

Mr.RAJIV BAJAJ,
Bajaj Capital

Due to factors such as inflation, poor sentiments, lack of adequate investment avenues & policy initiatives, the average annual household savings in capital markets since 2008-09 have been less than 1% of total household savings as against a long-term average of 2.5% since the 1970s. This is too low if we want to harbour any ambitions of becoming an economic super power in the future.

The equity culture in Indian households needs a push. We have numerous avenues such as mutual fund Systematic Investment Plans (SIPs) where millions have already created substantial wealth by participating in capital markets.

However, despite more than a decade of existence of such plans & a consistent track record, the participation in SIPs remains limited to merely one crore investors. It is not difficult to take up mutual fund SIPs to 10 crore investors in the next 5 years with a concerted policy effort supported by the government.

This can be made possible by promoting and incentivising SIPs where the participating amount is as low as Rs.100 per month, potentially within the reach of even the economically weakest sections of society. This requires a nationwide public awareness supported by the joint initiative between the government, mutual funds and distributors.

Equity &SIPs..!

Even at present, economically weaker sections (EWSs) of society save on a daily or / weekly basis by depositing some cash with individuals representing a chit fund. This is often fraught with risk. They can be made to invest in better regulated mutual fund schemes.

A certain category of SIPs (micro SIPs) are exempt from the requirement of KYC norms & PAN.

This can be extended to all SIPs. An exclusive tax incentive, as has been provided to NPS in the Budget, can also encourage households to start long-term SIPs in diversified equity mutual funds. Low income households that start SIPs can also be given corresponding initial contribution from the government to get them started.

The writer RAJIV BAJAJ is Vice Chairman and MD at Bajaj Capital.

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