Consumer interest and industry aspiration in increasing healthcare and insurance penetration are at a high following the pandemic and the upcoming budget session could have announcements in this direction with a target to achieve higher protection. Here we have highlighted what is expected on the personal tax side and how it can impact the insurance sector, what pharma and chemicals industry is expecting and where the broader government schemes are positioned.
Tax and insurance
The 80C deductions have been cluttered with the inclusion of life insurance premium, provident funds, tax saving instruments, and others included in ₹1.5 lakh deduction limit. The insurance industry expects a widening of the limit or creation of a sub-section for insurance, specifically protection products like term insurance. Similarly, the health insurance premium rebate limit of ₹25,000 is expected to increase, if incentivisation of health insurance must increase.
Deductions for health insurance are expected to be introduced into the new tax regime as well, if the ministry is intent on moving taxpayers to the simplified regime. Apart from health and life insurance, home insurance is often neglected, and industry expects a similar form of incentivisation to increase home protection.
Premium paid for pension plans which are taxed at a GST rate of 18 per cent are made from post-tax income of individuals. They are taxed in the hands of the pensioners when annuities or lump sum are received. A rationalisation of the tax structure is expected to improve retirement funding for the future.
The insurance industry-wide expectation is to reduce the current GST tax from 18 per cent to 5 per cent to lower the cost, at least in the basic protection plans. The FDI limit has been increased to 74 per cent in insurance, and a further increase to 100 per cent is expected to facilitate broader participation.
The regulator IRDAI has implemented composite license in insurance, where general and life insurers can operate in either segment. The current budget session may elaborate on how the scheme can play out to improve penetrations. Ease of product launch via Use and file (against the earlier method of filing the product before launch) has been implemented this year to broaden the segment.
The digital initiative in healthcare delivery has started in earnest as part of the National Digital Health Mission. In November last year, IRDAI launched a healthcare professional registry to build a network of healthcare professionals. More such announcements in the space can be expected, which will benefit healthcare delivery and insurance operations.
The stock performance has been weak in the sector in the last year. Listed players HDFC Life (-.6.2 per cent in one year) and SBI Life Insurance (+5.8 per cent) have had near-flat returns. New IPOs LIC (-20 per cent) and Star Health (-32 per cent) have fared worse since their IPOs last year. Thus the announcements in the budget will be crucial for stocks in the sector and we can expect some strong reactions either way, depending on what the budget holds for them. Watch out keenly for this space.
Pharma and chemicals
PLI scheme for API has started showing initial results, with capacities and corresponding incentives on manufacturing showing up on companies’ balance sheets in H1-FY23. Further expansion to bulk chemicals and intermediates where India is still import dependent is expected.
R&D weighted tax deduction ranging from 100-200 per cent has been a long-standing expectation for the pharma industry to improve innovation. This can aid industry growth or can increase focus on tropical disease eradication, which only Indian pharma can focus on.
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The chemicals industry on the other hand, which is back-ended into pharma and agrochem primarily, is exploring other avenues/allied industries for future growth; namely energy storage, green energy and clean mobility solutions. PLI in these sectors or R&D incentivisation may be expected to boost solutions domestically. The companies have started investments in the space anyways. PLI in allied industries will be helpful.
Nifty Pharma has had flat returns in the last year of -2 per cent. The chemicals industry has had a volatile year for stock returns but also ended similar to pharma with an average -2 per cent decline of the top 10 companies in the last year.
With the receding impact of the pandemic, this year may not witness high healthcare budget allocation. Last year’s budget speech opened with an acknowledgement of the health and economic effects of the pandemic but healthcare allocation stayed on expected lines with a 0.35 per cent of GDP allocation. Among the schemes, Nal Se Jal witnessed higher allocation last year (₹60,000 crore) with an aim to cover 3.8 crore households in 2022-23. Being a pre-poll year, insurance scheme - Ayushman Bharat, pharmaceutical distribution scheme - Jan Aushadhi may witness higher allocation.