Introduction: A Call for Reform in Insurance and Healthcare
As the Union Government prepares for Budget 2025, a report by State Bank of India (SBI) highlights the urgent need for reforms in the insurance and healthcare sectors. The recommendations focus on tax exemptions, rationalized GST rates, and increased public healthcare spending to strengthen these critical areas. Implementing these measures could drive economic growth and provide essential social security for India’s population.
Insurance Sector: Addressing Declining Penetration
India’s insurance penetration dropped to 3.7% in FY24 from 4% in FY23, with life insurance penetration falling sharply to 2.8%, while non-life insurance stagnated at 1%. This decline poses a challenge to the Insurance Regulatory and Development Authority of India’s (IRDAI) goal of achieving ‘Insurance for All by 2047’.
Key Recommendations for the Insurance Sector:
1. GST and Tax Exemptions:
- Remove GST and taxes on term life and health insurance premiums to make policies more affordable and accessible.
2. Separate Tax Deductions:
- Introduce a dedicated tax deduction of ₹25,000–₹50,000 for life and health insurance under both the old and new tax regimes, encouraging more individuals to opt for insurance.
3. Unified Pension Schemes:
- Integrate government-sponsored programs like Atal Pension Yojana (APY) and Pradhan Mantri Shram Yogi Maan-dhan (PM-SYM) onto a single platform for better accessibility and operational efficiency.
4. MSME Insurance Program:
- Develop a specialized insurance program for MSME employees, offering social security benefits, income protection for families, and coverage for business losses due to unforeseen circumstances.
Healthcare Sector: Increasing Public Spending
The SBI report calls for a significant boost in public healthcare spending, proposing an allocation of 5% of GDP, surpassing the National Health Policy 2017 target of 2.5% by 2025. This increase is deemed essential to meet the needs of a growing and ageing population.
Proposed Measures for the Healthcare Sector:
1. Effective Utilization of Healthcare Cess:
- Allocate proceeds from the healthcare cess to strengthen public health programs and infrastructure.
2. Tobacco and Sugary Product Taxation:
- Impose a 35% GST slab on tobacco and sugary products to generate additional revenue for healthcare initiatives and discourage unhealthy consumption habits.
3. GST Rationalization on Medical Devices:
- Standardize GST rates on medical devices at 5%–12%, replacing the current range of 5%–18%, to reduce costs and enhance operational efficiency.
Potential Economic and Social Benefits
The proposed reforms aim to:
- Boost Insurance Penetration: Affordable premiums and tax benefits will encourage greater adoption of life and health insurance.
- Strengthen Healthcare Infrastructure: Increased public spending and efficient cess utilization will improve access to quality healthcare for all.
- Generate Revenue for Healthcare Initiatives: Higher taxes on tobacco and sugary products will provide funds to support public health programs while promoting healthier lifestyles.
- Support Economic Growth: Improved health outcomes and financial security will lay the foundation for a more productive and secure population.
Conclusion: Toward Inclusive Economic Development
As Budget 2025 approaches, implementing these recommendations could significantly impact India’s journey toward inclusive economic development. By addressing declining insurance penetration, increasing healthcare spending, and rationalizing taxation, the government can ensure that essential services become more accessible, affordable, and sustainable.
These reforms are not just policy measures—they represent a commitment to building a healthier, more secure, and resilient India.