India’s Insurance sector faced serious challenges during the pandemic phase which resulted in muted growths. The life insurance industry grew by 10% & the General & Health sectors grew by 11% respectively in FY22. As India recovered from the pandemic due to increased awareness and several initiatives taken by the Regulator & insurance companies, growth trends during the first nine months till December 2022 has been more encouraging, with the Life Insurance New Business Premium (NBP) growing at 31% on a year-on-year basis (YoY) and the Non-Life insurance premium growing by 16%. The year also saw a great deal of Regulatory impetus like Use and File guidelines for product approvals, reduction in capital requirements for PMJJY, doing away with regulatory filings, promoting innovation and further digitization – all of them resulting in greater ease of business and development of the markets.

The Indian government has taken many steps to boost the insurance industry. The forthcoming Budget, the last one ahead of the election year, may provide further momentum to the sector, with the government likely to present the Insurance Laws (Amendment) Bill 2022. The amendments in the bill are focused on improving policyholder returns and facilitating the entry of more players into the market, leading to growth, higher penetration and employment generation. The Bill could also pave the way for issuing composite licenses to insurers, allowing them to offer both general and health insurance through a single entity. The Bill also proposes to remove the minimum paid-up equity capital requirements for insurers, with prescriptions being made under regulations issued by the IRDAI, as part of a significant overhaul of the insurance framework. The amendment also proposed to allow insurers to offer value-added services like health and wellness and distribute financial products such as mutual funds, thus becoming a one-stop solution for their customers. These changes proposed in the budget will have far-reaching impacts on the insurance industry. 

The insurance sector hopes the union budget will have provisions that will help the sector grow with higher penetration rates, which stood at 4.2% in FY22 (same as FY21). With the current optimism around the industry, the government could provide additional tax incentives, such as a deduction of up to Rs 50,000 on investments in pension schemes of life insurance companies (not just the National Pension Scheme, as currently allowed). The government could also make pensions received under insurance schemes tax-free, boosting investments in annuities. As usual, people eagerly wait every year to see if the Union Budget will make provisions for increased tax savings. 

In addition, the government could consider reducing the GST burden on the purchase of insurance policies from 18% to 5%, increasing the deduction limit under Section 80C, providing a separate deduction for investments in life insurance policies, or even abolishing the tax on investments in unit-linked insurance plans above Rs 2.5 lakh to make them more competitive.

As the country goes into elections in 2024, the budget’s focus is expected to lay a strong foundation for growth through continued emphasis on capital expenditure. It is also likely that the government will outline a credible path for fiscal consolidation to ensure that the impact on interest rates remains manageable. Tax revenue growth is likely to hit a lean patch in FY2024 as nominal GDP growth is expected to slow down to around 10-11% from the estimated 15-16% in FY2023 due to fading favourable base effects and easing price pressures. It is expected that the government will not significantly increase revenue expenditure but rather maintain its focus on Capex growth by resorting to measures such as reducing subsidy payouts.. The fiscal deficit, which was at its peak of 9.2% in FY2021 came down to 6.7% in FY22 and is expected to be around 6.4% in FY23 – still above pre-pandemic levels. The budget is also expected to demonstrate the government’s commitment to bring down the fiscal deficit closer to its target of below 4.5% of GDP by FY2026. This can be achieved through stable and sustainable growth and controlling expenditure. 

Insurance sector in India is a key driver of economic growth which encourages the nation towards protection & long term savings and also, being a very popular tax savings option. The Union budget can be a catalyst that propels not just the industry growth but also ensures a financially well-secured nation by making insurance purchase easier, cost-effective and tax-friendly