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Run up to the Budget: Insurance sector
Background
- The Indian insurance business is worth Rs 425
billion and yet its spread in the country is relatively thin and shallow.
- LIC collected Rs 274.6 bn worth premium during
the year 1999-2000 as against Rs 228.1 bn in 1998-99, representing a growth
of 20%.
- LIC has more than 91 mn policies in force, which
is among the highest in the world. The total investible fund with the LIC
is around 8% of India's GDP. The Gross Life Premium collected is about 1.55%
of the GDP, while countries like South Africa, South Korea and Japan procure
life premium exceeding 10% of GDP.
- Confederation of Indian Industry (CII) has estimated
that post liberalisation, the life insurance business is likely to grow to
Rs 600 bn and the non- life insurance business to Rs 200 bn by year 2005.
They are further estimated to grow to Rs 1400 bn and Rs 400 bn respectively
by year 2010.
- Low market penetration of insurance cover provides
a huge potential to the insurance industry. Three fourth of the insurable
population yet to be covered.
- Unlike the pre-nationalization era, Insurance
has now been opened up under the supervision of the IRDA. Being the prime
authority over the players in the industry it has an important role to play
in the development and regulation of the insurance market in India.
- According to IRDA guidelines, there is a 26%
foreign equity cap on insurance companies.
Key Players
LIC, GIC, National Insurance, New
India Assurance, United India, and Oriental.
New Entrants
Except for Reliance, most of the
Indian companies have joined hands with foreign insurance companies to set up
operations in India.
Key private joint ventures are
ICICI-Prudential, HDFC-Standard Life, Tata-AIG, Birla-Sun Life, Max India-New
York Life, State Bank of India -Cardiff, Kotak Mahindra-Old Mutual, Royal-Sundaram
Alliance, IFFCO-Tokio Marine.
Pre-budget expectations
- Tax Laws and a host of structural issues for
the insurance industry have come under close scrutiny by the Government. A
lowering of income tax rates for life insurance companies may be announced
in the union budget in line with the recommendation of the Eradi Committee
on rationalisation of life insurance tax structures.
- As against a flat rate of 12.5% of taxable profits
paid by LIC, the committee has recommended that the surplus funds distributed
to policyholders should be taxed at 7%. This will help LIC reduce its tax
liability.
- Profit on investments made by the insurance
companies is currently taxed at 35% plus the surcharge. Considering the commitment
of the Government and the IRDA in fostering the growth of the sector this
rate of tax may be reduced in the forthcoming union budget.
Rediff-Dun & Bradstreet Budget Impact Analysis
Budget 2001
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