To shape and sharpen Atmanirbhar and healthy Bharat

The budget 2021 can be described as a budget to shape and sharpen Atmanirbhar and healthy Bharat. In her speech, the finance minister mentioned that this year's budget proposals rest on six pillars - health and well-being, financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D and minimum government and maximum governance. These six pillars with approach of micro planning with macro perspective will further strengthen the vision of Atmanirbhar Bharat and reset and maintain the economy to the trajectory of growth and development.

The proposal to increase foreign investment limit in the insurance space from the current 49 per cent to 74 per cent will take the insurance sector to a new level and enable the industry to play an important role in economic development. This will be done through an amendment to the Insurance Act 1938 will also allow foreign ownership and control with safeguards. Under the new structure majority of directors on board and key management persons will be resident Indians with at least 50 per cent directors being independent directors and specified percentage of profits being retained as a general reserve. This would bring in much required capital to the sector, create jobs and increase the penetration of insurance.

There has been a continuous demand for a more liberal FDI policy for our one of the under-penetrated insurance sectors. The increased capital flow would help increase penetration. According to available data, overall insurance penetration was 3.7 per cent (premium as percentage of GDP) as against the world average of 7.23 with Life insurance penetration stood at 2.74 per cent, while non-life was 0.97 per cent.

According to reports, many Indian promoters are looking pare their stakes or exit due to lack of financial capability to further infuse capital. Some estimates suggest that Indian insurance companies need at least Rs 15,000 crore over the next three years. Public sector banks, which own a number of insurance companies, too are looking to reduce their stake in their insurance ventures. Moreover, due to mergers of public sector banks, many banks will have to exit one of the ventures as they cannot be promoters of more than one life insurance company. Insurance sector will also be transitioning into a risk-based capital regime and this will mean that an insurance company's minimum capital requirement will be directly proportional to the type of business written.

On employment generation front, this will lead to creating job opportunities in the insurance domain at various levels. According to an estimate, there is expected to be a 15 percent growth in the 1.5 million employment base in the insurance sector with the FDI limit increasing to 74 per cent.

Thus, an increase in FDI limits would serve the three-fold purpose of getting in more foreign inflows, create employment and increase the penetration of insurance in the country. Nonetheless, it would also require robust awareness initiatives to leverage the policy level changes and translate the vision into a reality.

(The author is an economist and an actuary)