The Union Budget has disappointed the life and general insurance sectors
Healthcare to become expensive due to increased service tax. The government on Monday proposed imposition of 5% service tax on treatment in private hospitals, paid either by individuals, insurance companies or firms. The service tax will be applicable to diagnostic tests of all kinds. All government hospitals shall be outside this levy.
The Union Budget has proposed to step up the plan allocations in 2011-12 for health by 20% to Rs26,760 crore. The Rashtriya Swasthya Bima Yojana (RSBY) which provides basic health cover to poor and marginal workers, is now being extended to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) beneficiaries, beedi workers and others.
In 2011-12, it is proposed to further extend this scheme to cover unorganised sector workers in hazardous mining and associated industries like slate and slate pencil, dolomite, mica and asbestos, etc. There is not much else on insurance in the Union Budget 2011.
According to Dr Amarnath Ananthanarayanan, chief executive officer and managing director, Bharti AXA General Insurance, "From a general insurance perspective there is very little the Budget offers. For this sector, we were expecting more reforms for financial inclusion, empowerment of women and benefits for senior citizens. While for the banking sector there is a greater thrust on capital infusion for ensuring capital adequacy, we expected a similar proposal for the increase of FDI (foreign direct investment) to 49%. Currently for us it's a wait and watch (situation) on what further defines liberalisation of the policy."
"The personal tax exemption for senior citizens and the introduction of the new special senior citizen category with even higher tax exemption is a positive. However, this remains restrictive. Some of the core issues relating to funding for retirement as well as ways to address problems caused by rising health care costs-especially for the elderly-have not been addressed. Rural propositions are more focused on the agricultural sector. Micro insurance products should ideally have been exempted from service tax. This would have triggered penetration of the insurance sector into the rural markets," he added.
"With the rising medical inflation, it's disappointing that the 80 D benefits remain unchanged and neither are there any significant attempts made to increase health care infrastructure. This will lead to increased healthcare costs and consequently a rise in health insurance premiums."
The Union Budget has proposed that services provided by life insurance companies in the area of investment should brought under the tax net on the same lines as unit-linked insurance plans (ULIPs). It proposes to expand the scope of legal services to include services provided by business entities to individuals as well as representational and arbitration services by individuals to business entities. There shall, however, be no tax on services provided by individuals to other individuals.
According to Amitabh Chaudhry, chief executive officer and managing director, HDFC Life, "There are changes proposed in the levy of service tax payable by insurance companies. On both conventional plans as well as ULIPs, increased service tax becomes effectively borne by the policyholder.
"The Budget did not outline anything on a separate tax exemption limit for life insurance. We expected a separate limit of Rs50,000 for life insurance premium, apart from the deduction u/s 80C of Rs1 lakh and Rs20,000 for infrastructure bonds. The time limit of 8 years is available for carry-forward of tax losses, the same should have been relaxed for life insurance companies, since this industry has a very long gestation period of 8 to 10 years. However, that did not happen," Mr Chaudhry added.
According to Nageswara Rao, chief executive officer and managing director, IDBI Federal Life Insurance, "The finance minister's announcement that the Insurance Bill will be considered in this session is a great boost to the insurance industry. It will empower the Insurance Regulatory and Development Authority (IRDA) to introduce forward-looking regulation to promote sustainable growth of the industry. The Bill gives a lot of flexibility to IRDA in framing regulations."
"The life insurance industry has been asking for pension annuities to be made tax-free. We are disappointed that the demand has not been met. However, we are happy that the basic exemption limit for senior citizens has been increased. The senior citizen age limit has been reduced to 60 years with basic exemption limit of Rs2.5 lakh and a very senior citizen category has been introduced at age 80 and above with exemption limit of Rs5 lakh. This will help seniors to enjoy pensions in their retirement years without any tax impact if they are within the exemption limit. But to develop the pension market completely, annuities need to be made tax-free. We hope that the Direct Tax Code (DTC) will ensure the same," Mr Rao added.
"The Budget has made a modification in the service tax on fund management charges due to which some of the guaranteed ULIPs would attract higher charges. However, guaranteed products would continue to be attractive to customers," he said.
Hybrid vehicles enjoy a concessional excise duty rate of 10 percent. However, import dependence for their critical parts/sub-assemblies is still quite high. The Union Budget proposes to grant specified parts of such vehicles full exemption from basic customs duty and special CVD. In addition, a concessional rate of excise duty of 5% is being prescribed to incentivise their domestic production.
The Indian automobile market is the second fastest growing in the world and has exhibited nearly 30% growth this year. Globally, substantial investments are being made in the field of hybrids and electric mobility.
To provide green and clean transportation for the masses, the National Mission for Hybrid and Electric Vehicles will be launched in collaboration with all stakeholders.
According to Dr Ananthanarayanan, "It's high time there is a move in encouraging the growth of alternative vehicles. The National Mission for Hybrid and Electric Vehicles is the first step. But the success of this will depend on the action plan that will be laid out for inducing the growth of India as a manufacturing hub."
NCC Infrastructure Holdings may go for equity dilution in the next six to nine months
NCC Infrastructure Holdings Ltd, a wholly-owned subsidiary of Nagarjuna Construction Company Ltd, may go for equity dilution to raise fund for its Krishnapatnam power project, a senior company official said.
Y Dakshina Murthy, executive vice president (finance) of NCC, however, did not specify what percentage of equity will be diluted to raise how much.
The NCC Infra, which has five road and three power projects under its belt may go for equity dilution in the next six to nine months.
The company has already invested Rs150 crore in the project so far and another Rs100 crore will be invested before the end of this fiscal to complete the procedure that would enable the company go for financial closure.
"Major fund requirement is for Krishnapatnam power project. It requires equity of Rs1,800 crore. We have 55% share and require Rs950 crore. For financial closure we require Rs250 crore. We have already put in Rs150 crore. Another Rs100 crore will be invested by the end of this fiscal. For balance requirement we are looking at possible equity dilution," YD Murthy said in a press conference.
On Monday, Nagarjuna Construction ended 1.36% up at Rs100.60 on the Bombay Stock Exchange, while the benchmark Sensex gained 0.69% to 17,823.40
SRF new plant in South Africa, which will be its second overseas units, will have an annual capacity of 25,000 tonnes
Technical textile maker SRF Ltd plans to invest Rs665 crore on expansion projects, which includes a new plant in South Africa and another in Gujarat.
"While we are determined to expand operations in all our businesses to achieve and retain global leadership, the expansion in the chemicals and the packaging films businesses is part of our overall strategy and ongoing efforts to reduce our dependence on nylon tyre cord," SRF MD Ashish Bharat Ram said.
The new plant in South Africa, which will be its second overseas units, will have an annual capacity of 25,000 tonnes. It is being set at a total investment of around Rs250 crore and is expected to start commercial production in July 2013.
"The new South African plant will also mark SRF's maiden entry into the Biaxially Oriented Polypropylene (BOPP) space. Currently, SRF has an annual capacity to manufacture 59,500 tonnes of Bi-axially Oriented Poly Ethylene Terephthalate (BOPET) films per annum through two of its plants in India," he added.
Earlier in October 2010, the board had approved a joint venture to set up a Bi-axially Oriented Poly Ethylene Terephthalate (BOPET) film plant of 28,500 MT per annum in Bangladesh.
The company has also obtained board approval to set up its second HFC-134a (an ozone friendly refrigerant) plant with an annual capacity of 15,000 tonnes in its chemical complex in Dahej in Gujarat.
The project is expected to be commissioned at an estimated cost of Rs365 crore.
The capacity of the second HFC-134a plant is much higher than the company's existing 5,000 tonne capacity plant in Bhiwadi.
In order to meet the enhanced requirement of power and utilities for the new projects at Dahej site, the company's board has approved to set up a captive power generation capacity of 14 MW at an estimated cost of Rs50 crore.
Apart from technical textiles business, SRF is a domestic leader in refrigerants, engineering plastics and industrial yarns as well.
On Monday, SRF ended 2.11% down at Rs310.15 on the Bombay Stock Exchange, while the benchmark Sensex gained 0.69% to 17,823.40.