Finance Minister Arun Jaitley is slated to present his maiden Budget for 2014-15 on July 10.
"In the current phase of economic downturn, any further deterioration in the savings rate would be detrimental and result in greater dependence on foreign capital for investments," CII Director General Chandrajit Banerjee said.
"The government should announce concerted measures in the Budget to scale up domestic financial savings through fiscal means, which will help mobilise long-term savings for funding infrastructure and economic development," he said.
Gross domestic savings as a proportion of GDP have declined from a high of 36.8 per cent in 2007-08 to 30.1 per cent in 2012-13.
The sharp deterioration in domestic savings could be attributed to a consistent decline in financial savings of households that dropped from 11.6 per cent of GDP to 7.1 per cent during the same period, according to CII.
It called for encouraging domestic financial savings through focused measures like increasing the personal income tax slab, removing Tax Deducted at Source on interest income to encourage bank deposits, raising deduction limits for insurance and pensions products, reintroducing tax free infrastructure bonds and promoting investments in Infrastructure Debt Funds.
Besides, it suggested increasing the income ceiling in Rajiv Gandhi Equity Savings Scheme, wider network for marketing inflation indexed bonds and bringing parity between debt and equity products on capital gains tax to scale up the financial savings ratio and help mobilise long term resources for funding infrastructure and economic development.
Among CII's Budget suggestions to promote savings are enhancing deduction under Section 80C on all long term and short term serving instruments including provident fund, pension funds, Equity Linked Savings Scheme etc from Rs 1 lakh to Rs 2.5 lakh.
It has also suggested increasing the deduction from Rs 15,000 to Rs 50,000 in respect of health insurance premium and payment made on account of preventive health check-up under Section 80D.
That apart, CII said the scope of the Section 80TTA could be widened to include interest earned on time deposits and increase the deduction limit to Rs 25,000. Currently deduction can be availed up to maximum of Rs 10,000.
It also advocated raising the income ceiling for deduction under the Rajiv Gandhi Equity Savings Scheme to Rs 25 lakh as compared to Rs 12 lakh at present.
CII said these measures would give an impetus in raising the domestic financial savings rate through all major financial investment vehicles.