With the election handing a decisive mandate to the new government, now is the time for concrete steps to revive the economy. Budget 2014 is a critical platform wherein the government should announce macro and industry specific measures to enable the economy to return to the growth path.
The general insurance industry is among several sectors yet to realise their true potential, as it remains under-penetrated at 0.75% of the GDP. It plays the important role of absorbing critical risks at a marginal cost, whether it pertains to a company’s operations or an individual’s personal assets. It is time the challenges faced by the industry are addressed, which include under-penetration, hurdles to growth and absence of long-term growth policies.
Increase penetration. It is not feasible for the government to solely meet the increasing healthcare needs of the nation’s vast population. The government should work towards ensuring an insured population by encouraging corporates to provide health cover to their employees through suitable tax incentives. A health cess can be imposed on those companies, which decide not to provide such cover. The health cess can fund initiatives such as Universal Health Coverage, which remains an important long-term agenda for the nation. To facilitate adoption of health insurance among individuals, the Budget should increase income-tax exemption for health insurance to R50,000 from the current R15,000 (plus R20,000 for senior citizen parents) under Section 80D.
Home insurance is another segment with few takers. The Budget should propose steps to make it mandatory for all home owners at the time of registration.
Remove hurdles to growth. The reinsurance sector has witnessed subdued growth, amid hurdles like tax ambiguity. This has limited the capacity of insurers to take on risks. The old view on reinsurance premium paid to the non-resident re-insurer (NRRI) accruing in India and, hence, chargeable to tax needs to be revisited. The UN Model Convention specifically exempts reinsurance from deeming accrual of income, notwithstanding the fact that the premium or risk may pertain to the territory of any particular country.
It is important that overseas reinsurance remittances towards premium are exempted from withholding tax. In absence of this clarity, NRRIs will curtail investments in India’s insurance sector. The lack of reinsurance support will be detrimental to growth.
The industry finds itself at a disadvantage to other sectors on taxation of capital gains from transfer of listed securities. Policy makers need to bring the non-life sector on a