The Hindu Business Line : In line with expectations

THE Budget's main thrust was broadly as expected, and in line with the Common Minimum Programme that was presented earlier; with a push on rural development, agriculture, employment generation and basic education. Importantly, while the Government has committed fresh outlays and expanded initiatives towards achieving the objectives set out in the Common Minimum Programme, the pleasant surprise comes in the form of only a marginally higher overall tax burden - both direct and indirect, which is largely contrary to expectations of industry and market.

The tax policy and structure has been broadly maintained, barring a 2 per cent cess to fund a basic education programme. Such stability in the tax policy is a significant positive for everybody in general. While the small savings rate has been maintained at the earlier level, we look forward to a rationalisation of the same, as mentioned by the Finance Minister, in the next budget.

Increasing the FDI limit for the insurance sector to 49 per cent is another positive move by the Finance Minister, in line with his former Budget initiatives to liberalise the insurance industry in the country. Such an increase has been discussed for a long time and was inevitable. The move is encouraging, as it will facilitate inflow of FDI, which can be ploughed into long-term projects and building infrastructure.

The liberalisation of the insurance sector has thus far been handled very well, spurring the growth of the industry and encouraging a level playing field. The emergence of private players has strengthened the industry as a whole and delivered greater value to the consumer. We hope the new pension regime capitalises on the capabilities of the new breed of life insurers in both the life insurance and pensions fields.

Worldover, pensions have been driven by tax exemptions. It is only such measures that will encourage the majority of people, who have no secure savings for their retirement, to build a substantial retirement kitty. The current limit of Rs 10,000 under Sec 80 CCC (1) is inadequate to build a reasonable retirement kitty and we were hoping that the Government, this year, would increase the limit to boost retirement savings. However, it is encouraging to note that the Government is committed to a defined contribution pension system with exempt exempt tax (EET) regime.

The increase in service tax rates as well as inclusion of additional services was expected. There is only a marginal increase from 8 per cent to 10 per cent, which is a positive, and inflationary impact, if any, will be marginal. The imposition of service tax on life insurance serves as a disincentive for the growth of a high potential, but yet nascent industry. The pinch will be felt most by the consumer, who would pay10 per cent over and above his/her premium for a specific sum assured. It will be administratively difficult to estimate the base for taxation, as proportion of premium towards pure insurance cover would not be the same for different products and consumers of different ages.

(The author is CEO & MD, ICICI Prudential Life Insurance.)