The insurance industry has always got special attention from the BJP-led NDA government. Be it Fasal Bima Yojana (crop insurance for framers) or Ayushmann Bharat (medical insurance for poor), the government has effectively used the insurance industry to provide coverage to millions of people at the bottom of the pyramid.
While the government-sponsored schemes brings bulk premiums, they also comes with their own inherent risks. The insurance industry needs a flow of stable business. Its laundry list for Budget 2020-21 includes relaxation in the FDI limit, a separate deduction for first time insurance buyers, increase in the health insurance deduction, and a hike in overall deduction under the traditional Section 80C.
In the last few decades, the size of the insurance industry has been growing in absolute numbers, but the penetration levels are too low as compared to global peers. Take for instance, the life insurance industry that earns annual premium of Rs 2.14 lakh crore has seen its penetration plunging from 4.5 per cent a decade ago to 2.74 per cent of the GDP in the present. The non-life or general insurance with premium size of Rs 1.70 lakh crore has fared relatively better. The insurance penetration in general insurance has improved from 0.60 a decade ago to currently at 0.97 per cent of the GDP. But the penetration level of general insurance industry is no match to global peers.
FULL COVERAGE:Union Budget 2020
Increase in Foreign Direct Investment
Post the privatisation of the insurance industry, all global players are present in India. The industry also had its share of rise and fall as privatisation brought competition, innovative products, aggressive pricing, and also better customer service. The insurance industry is now expecting a relaxation in the foreign direct investment (FDI) limit from 49 per cent to 74 per cent. While life insurance is in a better place with three top players (HDFC Life, ICICI Prudential and SBI Life) listed on the stock markets, general insurance and health insurance are capital guzzlers because of the kind of losses they have made in the recent past. There is already consolidation underway in the industry. The higher FDI limit will not only support the existing joint ventures but also encourage new players to set base in India.
Deduction for first time buyers
There is a demand from the industry for introducing a separate section in the Income-tax Act for providing a deduction of Rs 25,000 to Rs 50,000 for first-time insurance buyers. This can be done for all the policies or for term policies which covers only the life. This will give a big boost to the sector. While government has introduced state-sponsored crop and medical insurance for poor people, the initiative to provide separate deduction for first time buyer will be very positive. The money so raised could be deployed in long-term projects like infrastructure and other sectors. The banks are already moving out from long gestation projects, while the bond market is not well developed to take the load. In addition, the development financial institution (DFI) model also got dismantled after the big DFIs like IDBI, ICICI and IDFC turned themselves into banks.
Increase in health insurance deduction
The Section 80D allows a separate deduction of Rs 25,000 for premium towards a medical or health policy every year. The government has increased this limit gradually to Rs 25,000 per year, which includes the cover for the entire family or a single member. There is a strong demand for increasing the amount to a higher limit.
Increase in 80C exemption limit
Currently, the maximum tax exemption provided under Section 80C of the Income Tax Act is Rs 1.5 lakh, which is too low as it has other investments like public provident fund, equity-linked taxation scheme, home loan principal, etc. In fact, the PPF and home loan principle consumes the entire limit of Rs 1.5 lakh. The industry is expecting that this limit will be increased to 2.5 lakh to Rs 3 lakh.