Impact of Budget 2021 on Insurance Sector

Insurance companies have been long expecting reforms in this booming sector. Insurance affects the national population and it was just a matter of time that some sweeping reforms were coming its way. Here are the key announcements are their implications.

Initial Public Offering of LIC

LIC is the country’s largest insurance company and is owned and controlled by the Govt. For decades, Govt used and misused these powers to regulate the insurance markets. With ownership of LIC, govt intended to provide social security. This approach is no longer feasible in modern economy. LIC holds 76% of market share in the insurance sector. With this IPO, govt intends to list the company stocks in the stock market. It further aims to bring in more transparency and accountability to LIC as well as this whole sector. This sale is going to put the govt well on its way to disinvestment target and will help raise a massive Rs 70,000 crore.

Increase in FDI limit from 49% to 74%

In a landmark decision, govt had announced foreign direct investment of upto 26% in 2000 for Indian insurance companies. That time it brought in large amount of foreign capital as well as better management of funds and insurance schemes. But for a long time the FDI cap was fixed at 49%. This budget govt has increased the limit to 74% thereby allowing more control on boards by the foreign collaborators.

FDI increase will bring in more capital for long term growth. It is increase transparency and efficiency. This sector has just lit up with anticipation of more competition. New products and better technology will ultimately benefit the consumers. It will also help better penetration in the rural markets.

Tax exemptions go away

ULIPs were launched more than 50 years back. Post 2001 a number of companies introduced this scheme as a part of their product portfolio. Govt provided with tax exemption to boost investment in ULIPs. Union Budget 2021 aims to increase govt spending to tackle the downfall of economy due to the COVID lockdown. It was expected that the govt will do away with a number of tax exemptions. This budget removes the tax exemption on maturity proceeds of ULIPs.

Announcement in Union Budget 2021 are both interesting and pathbreaking. Industry is now hoping that its implementation is also swift and decisive.

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