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'Policy makers should introduce more measures aimed at facilitating digital migration'

Sanjeev Mantri     January 27, 2017

The Union Budget 2017-18 is set to be announced amid the backdrop of far reaching changes witnessed in the recent months. The world is keenly watching the impact that the change of guard in the US will bring, as also the disruption that the Brexit move is likely to cause in the coming months. At the domestic front, even as things seem to stabilize post the demonetization drive, the long term effect is yet to play out. While time will eventually show the true impact, we need to continue taking enabling steps to move further ahead on the path of inclusive growth.

The budget can act as a catalyst to take this agenda forward. Policy makers should introduce more measures aimed at facilitating digital migration and thus ensure that more Indians embrace the cashless way of life. Specific measures in terms of revamping direct and indirect tax structures, introducing incentives to promote capital investments as well as drive consumer sentiments are urgently needed to restart the currently stuttering growth engine.

An important though often ignored aspect here is that as a nation, we need to work towards ensuring that the risks that emerge from this growth drive are addressed effectively and in time. On a separate note, a surge in occurrence of natural catastrophes has been causing immense economic loss. For instance, economic losses during Chennai floods in 2015 amounted to around Rs. 20,000 crore, however, the insured losses were far less, estimated at close to Rs. 1,000 crore. We need to provide adequate cover so that India's aspiring populace and industry do not succumb to the impact of natural disasters or growth oriented initiatives.

The Government has taken some enabling steps in this regard. The previous year witnessed innovative measures being announced aimed at risk mitigation. The introduction of rail travel insurance is one such case. The rail insurance scheme was launched at 92 paise premium for a sum insured of up to Rs. 10 lakh per passenger. It has eventually been made free for passengers booking through IRCTC web platform. With this initiative, millions of India's rail passengers can get comprehensive compensation in case of rail disasters. Similarly, the introduction of Pradhan Mantri Fasal Bima Yojana (PMFBY) has reinvigorated the crop insurance sector and ensured that thousands of farmers are protected from the damaging impact of crop losses. These are truly empowering steps and can play a lead role in providing the necessary cushion for Indians to work towards their aspirations, as the underlying risks are taken care of.  

We need more such risk mitigation initiatives and the budget provides a real opportunity for policy makers to do so. Two areas where the government must focus on are home insurance and health insurance. Today, an average citizen deploys his life savings to purchase a house. However, a single catastrophe can wipe out the asset in minutes. We need to provide an enabling framework through tax incentives to motivate home owners to avail home insurance and thereby cover the structure of their homes and the contents within. On the health insurance front, while tax benefits are already available, given the consistently rising medical inflation and emergence of life style diseases, policy makers need to significantly raise the exemption limits to at least Rs. 75,000 per individual.  

While introducing direct measures that can drive insurance penetration is important, the budget needs to simultaneously address certain anomalies that limit insurers from pricing risk appropriately. When it comes to service tax, non-life insurers should be allowed to avail end to end input credit. Also, exemptions applicable to certain sectors need to be done away with. Such anomalies add to the cost of insurance and impede the overall growth of the sector.

Another issue that needs to be addressed is related to corporate tax rate. Currently, non-life insurance companies are required to pay corporate tax at the rate of 33% plus surcharge, while the same for life insurance sector is 12.5% plus surcharge. Considering the essential requirement of both forms of insurance and a common consumer focus, it is important that tax rates for non-life insurance sector be brought to the same level as applicable for life insurance. A reduction in tax rates will have direct impact on the financial health of non-life insurers giving them greater capacity to take on risks.
The Government has shown intent to take bold measures in the last two and half years. Risk mitigation is an essential ingredient for a growing and financially secure nation. Even as we pursue growth, we need to introduce risk alleviation capabilities to ensure a sustainable growth for our aspiring population.

The author is Sanjeev Mantri, Executive Director, ICICI Lombard general insurance

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