The Union Budget 2017 is of great significance as it came with reformatory measures touching all important facets of the Indian economy. But one of the striking aspects of the 2017 budget presentation was that the railway budget was combined with the general budget. In its second half of governance, the BJP led government is pushing forward all the plans and policies formulated in the first half and capitalizing over the same. Analysts observe that this move by government will find its intended results in the 2019 general elections. Furthermore, it is the first time in decades that a Union Budget has been presented on the first day of February, a slight deviation from the traditional way of budget presentation. It clearly conveys that the government is highly determined to start with the implementation part of the finance bill before the current fiscal year ends. Another notable feature of the Union Budget is that it was announced at a time when several national and international events of economic importance were taking place in the country.
Effects of demonetization
The high quantum of cash deposits in banks in a very short period is a clear indicator of the success of the demonetization move. It is expected to bring positive changes on the economy as a whole, since the income tax collection rates too will improve in the coming days. And now with the increase in tax exemption slabs, the short term decline in consumption which largely affected the retail sector will also be counterbalanced. Even though the government has been taking steps to fully digitalize currency transactions, it is also suggestible that an efficient mechanism be devised to stop further creation of black money.
Life Insurance and Union Budget
Life insurance industry has a key role to play in the development of a nation. Life Insurance is one of the most important financial tools that support long-term investments and comes next to banks in terms of customer preference. Furthermore, it was the largest contributor in the infrastructure development sector with over Rs.3 lakh crores of investments in the fiscal year 2016. Insurance companies also hold a considerable share in government securities and it was at 22% as of March 2016. Insurance analysts suggest that more effective reforms should be implemented to bring the industry on par with other comparable products in the financial market.
At present, government requires every insurance company to invest 50% of its life fund in government securities, which is much higher when compared to the 20.75% Statutory Liquidity Ratio (SLR) applicable to banks. This rule if relaxed will highly benefit the insurance segment as a whole and will pave way for improvement of fund performance. Apart from the tax exemptions given in Section 80C, the government should have specified an additional limit on deductible amount underscoring life insurance. Such a change will encourage more people to opt for life insurance plans and gain financial stability and protection through long term investments.
Tax treatments should be based purely on the nature of the products and not the platform that offers them. For example, the tax exemptions on NPS is much higher than the benefits offered for life insurance plans. Experts suggest that the life insurance policies should qualify as capital asset and only the returns on maturity should be taxable.
But on the whole, the budget didn’t have much to offer to the insurance sector. The increase in taxable income limits could have been augmented with a similar increase in the tax exemption limit of insurance policies. However, in a move to promote insurance as a risk mitigation tool, the government has upped the protection offered under Pradhan Mantri Fasal Bima Yojna (PMFBY) to cover 40% of crop area.
At present, the government aims at pursuing the long term goals for economic development by focusing on areas such as rural development, digitization, infrastructure development, etc. In general, the insurance sector needs a gentle push to bring the desired outcomes. The following points needs to be looked upon for boosting the insurance penetration in the country:
- Higher tax exemptions on insurance products
- Home insurance to be made mandatory
- Annuity to be moved out of tax bracket
- FDI relaxations
