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My Budget Wishlist
Sunil Mehta, Country Head & Chief Executive,
AIG (India)
What are your overall expectations from the budget in
general and for the insurance and pension sector in particular?
The forthcoming budget should provide a consistent approach
and not indulge in minor tinkering 'of nuts and bolts'.
In the forthcoming Union Budget (for fiscal 2003-2004) I
expect the Finance Minister to address certain structural
issues which will make the Indian economy more vibrant. Some
of the issues that I see being addressed are:
- Reforms in tax structure
- Steps towards initiating reforms in the pension sector
- Incentives for development and growth of infrastructure
projects in India
- Structural issues for markets such as removing the anomaly
between small savings interest rates and prevailing interest
rates, removal of dividend tax.
The opening of the insurance sector has been a step in the
right direction. The industry and the Indian consumer has
benefited from private and foreign participation. It's time
that the government removes sector caps on foreign participation
and permits more foreign direct investments. These will be
long-term equity investments by foreign partners and provides
for higher risk participation in initial years of business.
The country needs to move to the next phase of developing
a robust safety net through pension reforms. Less than 11
per cent of the working population in India has access to
any form of retirement benefits. I expect the Finance Minister
to appoint the Pension Authority, which will commence a through
overhaul of the existing structure and open-up this sector
to private participation.
India has historically experienced shortage of long-term capital.
To develop long-term capital we need to channelize savings
in long-term financial instruments. Long term Pension funds
will provide the necessary resources to invest in these financial
instruments.
However, we need to address the anomalies between small savings
interest rates and the prevailing interest rates in the economy.
Removal of dividend tax would pave the way for a robust capital
market,which widens investment opportunities for long-term
players. Further,investments in Mutual Funds becomes attractive
for retail investors.
What benefit will the budget bring for investors / policyholders
of insurance / pension?
If this year's Union budget is able to give incentive for
long
term investments which will be consistent over the years the
Indian investor/consumer will react more favorably and channelise
his investible funds in the pension and insurance instruments.
It is also important for the development of robust pensions
and insurance market that the budgets differentiate between
the long and short- term investor and rewards the former appropriately.
In the immediate scenario, several tax reform measures being
debated could help the insurance buyer. For example, the Kelkar
Committee is advocating continuation of deduction under section
80 CCC for contribution to a pension fund of an insurance
company in India. It is also proposing to raise the ceiling
of the deduction from Rs.10,000 to Rs.20,000. Supplementing
this, it is suggested that a deduction under
80CCC be given as a tax rebate of 20% as against a similar
deduction from taxable income.
What will be the implications of the Kelkar Committee
report?
The Kelkar Committee recommendations primarily address tax
and tax administration reforms. For instance, the report mentions
as of September 2002, the CBDT has a backlog of over 2.8 crore
tax returns that are yet to be processed. It exhorts the IT
Dept. to focus primarily on collection and monitoring of tax
and to outsource the other labour
intensive tasks such as data entry, etc.
Secondly, the report also recommends simplification of the
tax
compliance process. Additionally, it also recommends that
the PAN identification given to tax payers be extended to
serve as a Citizen Identification or Social Security Number
thus, avoiding duplicating the entire process.
Effective implementation and simplification of tax procedures
will help in creasing government revenues.
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