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'A Relook At The FDI Limit In Insurance Sector'

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I believe the key to 2013-14 budget will be to rein in fiscal deficit, control expenditure (slashing subsidies etc), show buoyancy in tax revenues (without raising rates) and yet present a people and investment friendly budget. Many of these issues will conflict each other and the trick for the FM would be to balance all of these. Being the last budget before the General Elections will make the task even more daunting as one would need to please all and yet show fiscal prudence while taking confidence building steps to encourage long-term foreign capital inflows for domestic companies to step up investments.

A gradual economic recovery ahead is premised on three key economic imbalances -trade deficit, fiscal deficit, inflation - stabilising or improving. I expect the government to present a market-friendly Budget for FY14, with a clear roadmap for fiscal consolidation. Though inflation in India has become sticky, FY14 inflation should slow by at least 1 per cent or so due to depressed capex, slow credit and slow global PPI inflation. Focus would also be on GST roadmap and likely implementation since 1st April 2014.

Insurance as a sector has been investing in infrastructure and govt securities with a long-term view. This has a positive impact on the overall economy and is more productive unlike unregulated sectors like real estate and gold. Hence all steps must be taken to encourage investments here and add to the India growth story.

The life insurance penetration in India is at 4.5 per cent, though it has grown over the years, there is still a lot to be done and per capita premium is still probably the lowest. Budget 2013-14 is round the corner and if some of the below mentioned expectations from the Life Insurance industry can be implemented, there will be some skin in the game for the insurance and more benefits for the customers.

Separate Sub-limit For Long-tem Savings Like Insurance
The most crucial recommendation which has been raised over the years is around tax incentives for customers to spur demand for life insurance products. Currently the deduction under Section 80C is a combined limit shared with other investment products including provident fund contributions, savings certificates, bank tax saver deposits, and insurance and life insurance premiums. Life Insurance and Pensions are the only segments of financial services that address the needs of individuals in the long-term. This will help provide a fillip to insurance sales, increase the level of insurance penetration in the country and also help channelize savings into financial instruments & long term infrastructure projects as against non-productive investments like gold. Hence, the Government should look at encouraging people to save for long-term by providing a separate sub-limit of Rs 1 lakh for long-term savings.

Criteria on Sum Assured Being Minimum 10 Times Of Premium Paid
Additionally, the current tax deductions are based on a multiple of sum assured (minimum 10 times of premium to be eligible for tax benefits), which is a distortion as compared to competing products like bank deposits & mutual funds where the deduction is based on tenure of the product. Also this is detrimental for older people seeking life cover as it impacts their premium adversely. We have requested the Finance Minister to apply the same criteria to insurance products to enable it to attract long term savings.

Also incase the Government is implementing any major changes in the insurance tax laws then it should be on prospective policies as levying additional tax on existing policies would be unfair to the customers and the companies.


The growth of the Indian insurance sector is critical from the aspect of a social security measure. Fresh Foreign Direct Investment (FDI) is required to fuel this and to ensure that customers in India get access to world-class products, which the foreign partners bring into India. The increase in FDI will give the Indian insurance industry the necessary capital infusion required for its development and expansion. Government had committed that this ownership cap will be increased to 49 per cent, as the insurance sector grows, similar to telecom, retail, banking etc, to enable further investments.  Delay in enabling this has clouded further investments in the sector. We are hoping that all political parties will look at the FDI limit in an overall perspective and encourage the growth of the insurance industry in the country.

(The author is TR Ramachandran, CEO & MD, Aviva India)