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BW Businessworld

When Good Is Not Enough

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The first full budget  of the BJP government is undoubtedly pro-development and business and people-friendly — there is something in it for everyone, if not everything. By announcing a wide array of measures, including the introduction of the Universal Social Security Scheme, Atal Pension Yojana, Atal Innovation Mission, new AIIMS hospitals across India, reducing corporate tax, incentivising card transactions and abolishing wealth tax, the finance minister has managed to lay a strong foundation for the future. 

Admirably, the Budget gives adequate attention to providing not-so-expensive health, accident and life insurance covers for everyone. Here are a few themes that sum up the impact of budget on the insurance sector:

Increase In Tax Benefit
In lieu of extending benefits to middle-class taxpayers, the FM increased the limit of deduction against health insurance premium from Rs 15,000 to Rs 25,000. For senior citizens, the limit has been increased from Rs 20, 000 to Rs 30, 000. In addition to this, very senior citizens (over 80 years) who are not covered under health insurance can avail deductions of Rs 30, 000 towards expenses incurred on medical treatment and up to Rs 80, 000 towards expenditure against pre-identified diseases of serious nature. What’s more, an additional deduction of Rs 25, 000 has been allowed for differently-abled citizens under Section 80DD and Section 80U of the Income Tax Act.

Given the rapid growth in diseases and flu epidemic and the consequent increase in healthcare spends, it was imperative for the government to revisit tax benefits against health cover and encourage people to opt for higher sum assured policies. As per the World Bank estimates, India’s public financing for healthcare is less than 1 per cent of the world’s total health expenditure, even though it is home to over 16 per cent of the world’s population. The report further adds that Indian families meet close to 70 per cent of their health expenses out of their own pockets, which place considerable financial burden on poor households and often pushing them deeper into poverty. Increasing the tax exemption limit against health insurance cover would persuade large number of people to safeguard themselves and their families against higher medical costs.

Universal Social Security Scheme
The budget clearly has a ‘pro-poor and pro-middle class’ orientation as indicated by the Prime Minister of India. This BJP-led government has come up with the Universal Social Security Scheme for all Indians and announced the launch of the Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) that will cover accidental and natural deaths, respectively. The scheme will be linked to the Pradhan Mantri Jan Dhan Yojana. The government will offer insurance coverage worth

Rs 2 lakh under both schemes. Under the PMSBY, insurance will be made available for a premium of just Rs 12 per annum or Rs 1 per month. The PMJJBY is targeted towards the age group of 18-50 years wherein one can avail death benefits by paying a premium amount that is as low as Rs 330 per annum.

While the Universal Social Security Scheme is meant to benefit everyone, it will predominantly attract economically weaker families, including those that are currently not covered under any insurance plan. This move would further increase the penetration of insurance beyond tier-1 and -2 cities. What needs to be seen is whether or not it will benefit insurers at large.

Sukanya Samriddhi Scheme
This relatively new entrant (launched in January 2015) within the small-savings category was announced in the previous budget. It is directed at encouraging small savings for the girl child’s education and marriage. While investments made under the Sukanya Samriddhi Scheme were already eligible for tax exemption under Section 80C, the FM has made interest income and withdrawal from this scheme tax-free.

This is a positive step that will encourage the birth of the girl child and her education and address the growing concern towards the worrisome sex ratio of 918 girls for 1,000 boys. Furthermore, increasing tax exemption under this long-term savings plan will encourage more people to secure their girl child’s future, and thereby promote financial inclusion.

To sum up, Budget 2015 is in the right direction and reiterates the government’s commitment towards accelerating India’s economic growth. However, the key question to ask is whether one could have expected more from this government under the current economic backdrop. Would it have helped if the government provided for a separate exemption limit of Rs 1.5 lakh exclusively for insurance policies, instead of clubbing it with other investment instruments? Would it have helped if there was a separate limit under Section 80CCE for deductions up to Rs 1.5 lakh for payment made against life insurance premium?

Yes, it would have clearly benefited both insurers and consumers alike. For instance, creating an exclusive exemption limit for insurance policies would encourage people to invest in life insurance plans and thereby promote long-term savings. Life insurance through its reach can play a pivotal role as an aggregator of long-term savings.

Going forward, we expect the government to provide better clarity on how it plans to implement a uniform KYC across all banks, mutual funds and insurance industry that was announced last year. The insurance sector will closely watch if the ordinance pertaining to it goes through. With an increase in  the foreign direct investment cap, the insurance sector may get access to much-needed capital infusion that can be channelised to increase penetration of insurance across the country.

The government must be held responsible for setting its plan in motion and delivering on its budget promises — implementation and execution must be treated as high priority, effective today.  

The author is CEO and co-founder,

(This story was published in BW | Businessworld Issue Dated 23-03-2015)

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