Overview of the SBI Research Report
The State Bank of India (SBI) Research Division has released a new report recommending key measures to boost India’s insurance and healthcare sectors. These proposals aim to address declining insurance penetration and support the “Insurance for All by 2047” mission set by the Insurance Regulatory and Development Authority of India (IRDAI).
The report highlights the need to rationalize Goods and Services Tax (GST) on insurance premiums and introduce separate tax deductions for social security under the new tax regime to drive sectoral growth.
Insurance Penetration Concerns
According to the report, insurance penetration in India fell to 3.7% of GDP in FY24, down from 4% in FY23 and 4.2% in FY22. The drop, attributed to declining life insurance penetration, raises concerns about meeting IRDAI’s ambitious goal of universal insurance coverage by 2047.
Proposed Measures to Revive the Insurance Sector
The report suggests the following initiatives to strengthen the insurance industry:
1. GST Exemption on Insurance Premiums:
- Remove GST on term life insurance, pure life insurance, and health insurance premiums to reduce costs for policyholders.
2. Separate Tax Deductions for Insurance:
- Introduce separate deductions of ₹25,000 or ₹50,000 for life and health insurance in both the new and old tax regimes, similar to the National Pension Scheme (NPS).
3. Unified Government Pension Schemes:
- Consolidate all government-sponsored pension schemes under one framework to improve efficiency and accessibility.
4. New Insurance Programme for MSMEs:
- Launch tailored insurance programs to cover micro, small, and medium enterprise (MSME) employees, supporting financial protection for workers in this sector.
5. Healthcare Sector Revamp:
- Rationalize GST on medical devices with a uniform rate of 5% to 12%, down from the current range of 5% to 18%, to simplify compliance and reduce healthcare costs.
Healthcare Sector: A Call for Increased Spending
The report also emphasizes the need to enhance healthcare spending to 5% of GDP, up from 1.95% in FY24, to address the growing demands of India’s ageing and expanding population.
Key proposals for healthcare include:
- Allocating proceeds from a healthcare cess and the proposed 35% GST slab on tobacco and sugar products to strengthen public health programs.
- Simplifying the tax structure for the healthcare sector to improve operational efficiency and lower costs for end consumers.
Impact of the Proposed Measures
The proposed initiatives are expected to:
- Reduce financial burdens on policyholders, encouraging higher insurance adoption rates.
- Support IRDAI’s mission of increasing insurance penetration by 2047.
- Strengthen public health infrastructure and make healthcare more accessible and affordable.
Conclusion: A Strategic Path to Growth
The SBI report underscores the critical need to rationalize GST and introduce supportive tax measures to revive India’s insurance sector and expand healthcare services. These reforms, if implemented, could position India as a global leader in affordable insurance and healthcare delivery, benefiting both individuals and businesses.
