A booster shot for the insurance sector says Edelweiss Tokio Life Insurance
Sumit Rai, MD & CEO at Edelweiss Tokio Life Insurance highlights that FM’s Budget comes on the heels of a year that was characterised by a health crisis, a weakening economy, and a dampened investor sentiment. It is no wonder then that Budget FY22 has laid a heavy emphasis on protecting lives and livelihood, charting out a clear roadmap for spurring structural demand.
Sumit Rai, MD & CEO at Edelweiss Tokio Life Insurance highlights that FM’s Budget comes on the heels of a year that was characterised by a health crisis, a weakening economy, and a dampened investor sentiment. It is no wonder then that Budget FY22 has laid a heavy emphasis on protecting lives and livelihood, charting out a clear roadmap for spurring structural demand. Through an array of reforms across sectors, the government has shown a clear resolve to put the economy back on track for recovery.
From aggressive spending plans to boost demand, to making adequate provisions for social welfare, this Budget makes the influence of the Covid 19 pandemic evident.The mounting financial burden of Covid 19 healthcare has wiped out savings of various families, underscoring the need for financial protection and social security.
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a) Demand creation led by capital expenditure:
With an aim to push investments, the government has increased allocation towards capital expenditure to Rs. 5.5 lakh crores from Rs. 4.4 lakh crores last year. This, along with the government’s infrastructure push by reinstituting the DFI model is likely to result in a much-needed multiplier effect on GDP growth. The Budget has also announced a score of measures to boost demand offtake in agriculture, MSME and start- up sectors, which are the heart of the Indian economy. Foreign inflows have also been incentivized through innovative financial sector reforms and relaxation of specific conditions relating to infrastructure investment. This Capex led stimulus instead of a consumption one, will deliver a larger multiplier on employment and growth, precisely the antidote the economy currently needs.
b) Fiscal Management:
The Budget also pegged FY 2021 fiscal deficit at 9.5% of the GDP, and FY 2022 at 6.8%. It announced an increased borrowing of Rs 80000 cr in the ongoing financial year, and Rs 12 lakh cr in the next one. It also exhibited a pragmatic approach of setting the economy on a path of fiscal consolidation only by FY2026, indicating a higher focus on growth and capex in the shorter term and fiscal management in the medium term. The government also announced aggressive divestment plans, which is expected to fund the deficit in the shorter term. Such innovative financial sector reforms, adept resource allocations, possible fiscal funding by aggressive asset sales in the form of existing functional infrastructure monetization, disinvestment, strategic sale and more, could augur for higher growth potential in the medium term.
c) Incentivising foreign investment in Insurance:
From the perspective of the insurance sector, the most critical announcement has been that of a hike in permissible foreign direct investments to 74% from 49% earlier. This move, which will bring foreign capital into the sector, will support the industry growth in the medium term. Insurance sector has been closely linked to longer term projects like infrastructure, which are critical to economic development. An added capital support from foreign players will, therefore, help strengthen the country’s infrastructure sector. Higher foreign inflows will also improve the country’s forex position.
d) Social Security for Gig Workers:
Government’s proposal to formulate social security benefits for gig workers is a positive move towards financial inclusion as well as protection. The government intends on collecting relevant data from gig workers to formulate necessary public schemes, including insurance. Minimum wages will apply to all categories of workers and will be covered by Employee State Insurance Corporation. Not only will this help improve financial inclusion, but also could help bring a larger population under the umbrella of insurance.
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