Consumption gives immediate gratification while savings provides delayed gratification. Given a choice people prefer consumption over savings early in their careers owing to peer pressure. This is where schemes like 80C plays an important role.
80C is not only important for nudging savings habit, but also for capital markets. Small savings schemes which mostly enjoyed 80C benefit are prefered by many small income group people. This also aids much needed borrowings of the government for various policies.
80C is a big USP for LIC and many other insurance products. These products invest in debt and provide much needed long term debt to infra companies and government. They are one of the largest subscribers to government debt.
Most of these insurance policies are bought by young earners to save tax who have just started their careers. Given an option these youngsters would simply love to postpone buying an insurance and instead prefer getting themselves a latest iPhone, which increases our CAD.
We don’t need consumption by sacrificing savings in a capital starved country. You create demand supply imbalances in the economy through such policies.
Today apart from statutory PF deduction for salaried and 80C deduction on PPF there is no other nudge for people to save for their retirement kitty. By giving a choice there can be drop in such savings habit and burden may lie on government to take care of retirees.
In a country where financial literacy is abysmally low, there are very few advisors and Government is starving of resources, it is very bold and early step to give people a choice of not investing. I hope someone understands behavioral aspect and financial implications of such policies.