The Union budget for financial year (FY) 2016 has introduced a strategic framework and laid the foundation for India’s inclusive growth in the coming years. The approach to provide medium- to long-term clarity and draw a roadmap for the future through specific announcements, such as corporate tax reduction to 25% over four years, is encouraging. These measures signal a new era when it comes to predictability of policymaking.

Steps taken towards improving the productivity of physical assets such as gold, discouraging cash transactions, reducing subsidy leakage through direct benefit transfers (DBT) are positives and will encourage growth in the formal sector.

Continuing from the previous budget, the government has made its intent clear to continue on the path of financial prudence albeit with a one-year delay in achieving the fiscal deficit target of 3% of gross domestic product (GDP), given the immediate need for enhancing public investment in infrastructure.

Employment generation

India as a nation has several things going for it and the government seems poised to draw out clear plans to take advantage of these catalysts. As is well known, more than 65% of India’s population falls in the productive working age bracket. By focusing on policies aimed at job creation in critical sectors such as micro, small and medium enterprises (MSME) and labour-intensive sectors such as leather, footwear, tourism, and others, and encouraging entrepreneurship, the government is providing the desired incentives to harness the nation’s demographic dividend. At the same time, by allocating the highest budgetary spends to schemes such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), it has shown keenness to ensure continued support to the rural poor.

Moving away from the traditional approach of merely enhancing tax exemption limits for individual tax payers, the government has rightly focused on channelizing their savings to more productive avenues, thereby promoting wealth creation.

Moving savings to investment, protection

The announcement of a Gold Monetization Scheme, wherein individual holders can earn interest on their gold deposits, will create significant opportunities for Indians to formally participate in the financial wealth creation process. At the same time, the introduction of tax exemption benefits up to 50,000 towards investment in the New Pension System (NPS) will encourage retirement planning among Indians.

Inclusive growth goes hand in hand with financial protection. The government has clearly acknowledged the need to adopt this approach by announcing schemes that target the uninsured population. The Pradhan Mantri Suraksha Bima Yojana, wherein an individual can avail personal accident insurance cover of 2 lakh for a premium of only 12 per annum is a positive and a much needed step. At the same time, by providing employees the option to opt for health insurance as against compulsory participating in the Employees’ State Insurance Corporation (ESIC), the budget ensures that they get the opportunity to avail the diverse benefits that health insurance offers. This should help boost the health insurance penetration from the existing levels of around 5%.

While targeting the non-insured is important, it was equally critical that the government address the issue of underinsurance. It is common knowledge that a sizeable percentage of customers purchase health insurance limiting their premium outgo to 15,000 (which is the current tax exemption limit for the below 60 age group). With rising medical costs and emergence of life style diseases impacting even the younger age groups, the sum insured pertaining to this premium would prove to be insufficient in future. By increasing the exemption limit to 25,000, the budget will ensure that this section of the insured population enhances its sum insured and is, thus, better protected from the financial impact of medical emergencies.

For the older segment of the population, the enhancement of tax exemption limit for health insurance to 30,000 is welcome. Taking cognizance of the needs of the 80+ age group who may not have opted for health insurance, the government has done well to provide deduction up to 30,000 towards their health care expenses.

The first full-year budget of the central government was unveiled amid high expectations. The finance minister has done well by choosing to walk the path of fiscal prudence and introducing a clear policy framework that sets the tone for growth-oriented reforms, infrastructure thrust and, most importantly, inclusive growth that impacts all sections of the society.

Bhargav Dasgupta, managing director and chief executive officer, ICICI Lombard General Insurance Co. Ltd.

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