If India is to retain its status as an economic superpower, it must meet two critical needs to ensure long-term social equity and productivity. One is securing steady income for our senior citizens, who have contributed to the economy for many working years. The other is to ensure that the young population remains healthy and continues to operate at maximum productivity.
Securing financial future by incentivising long-term savings
In India due to an absence of a social security system only those in government services can be assured of a pension for their old age. To ensure that people save for their old age, we need fiscal policies that will:
• Incentivise sufficient amount of savings: Currently, under Section 80C there is a tax incentive to save up to Rs100,000 per annum. However, the amount may not be enough when to secure one’s future cost of living. Also, those who save more than the Rs100,000 limit, are effectively taxed at both the entry and exit stages, resulting in a situation that encourages expenditure rather than savings. This anomaly needs to be addressed.
• Differentiate between short-term and long-term savings: The current tax incentives are same for short-term and long-term savings. Hence they do not encourage individuals to save for 15-20 years, because the tax benefits they get from a more flexible 1-2 years are just as attractive. So, we see people investing for horizons of a few months or, at best, a few years, towards scores of financial needs, but rarely for their golden years.
To ensure a secure financial future for individuals, there is a need to differentiate between long-term and short-term savings, and incentivise the former. To implement this, a separate and additional ring-fenced limit of Rs100,000 for long term savings (for a period greater than 10 years) particularly pensions, should be enabled.
Providing impetus to health insurance sector
With the increasing incidence of health spends and growing number of uninsured population, coupled with the gap in the current health cover, health insurance has been acknowledged as one of the most efficient means to meet and manage health spends. Therefore, the need of the hour is to ensure that each individual is adequately covered for any medical contingency that may arise.
Some of the recommendations to the Government to strengthen the sector are:
• Enhancing tax exemption under Section 80D for senior citizens: With medical expenses growing at a rate higher than overall inflation along with increasing medical expenses, especially for senior citizens, which influences the health insurance premiums they pay, there is an urgent need to further enhance the limit under Section 80D in respect of senior citizens. To enable greater health coverage for senior citizens the Government may consider allowing an exemption of up to Rs.20,000 a year per person for health insurance premiums paid for self/dependants in the age group of 55 years and above.
• Section 80D exemptions for health savings plans: Health savings accounts have been used successfully as a health financing tool by developed economies to encourage younger and healthier pools to participate in the health risk pool. The Government may consider bringing health savings accounts offered by insurers under Section 80D
Enhancing tax exemptions on the premiums paid for health coverage can give great impetus to the health insurance segment. Specifically the above propositions, if considered in the forthcoming Union Budget, will provide a boost to the health insurance segment.
The author is managing director and CEO, ICICI Prudential Life Insurance Company Ltd