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  • : "The current budget is more pragmatic..."
  • --> OUTLOOK ARENA  >>   FACE TO FACE >>  JULY 12, 2004

    "The current budget is more pragmatic..."

    Ms. Shikha Sharma started her career in ICICI in 1980 and worked in various divisions of ICICI. She was involved in setting up of I-Sec a Joint venture between ICICI & JP Morgan and ICICI's personal financial services which includes retail deposit taking, retail credits, credit cards and web trade. ICICI is one of India's largest financial services providers.

    Currently she is the Managing Director & CEO of ICICI Prudential Life Insurance Company Limited. She has overall responsibility for all operations of the company.

    Pfn: How would you rank the budget on a scale of 1-10 with 10 being the highest?

    Ms. Sharma : Rank: 7/10

    Pfn: Specify one strong positive and negative aspect of the budget.

    Ms. Sharma : Positive: While the government has committed fresh outlays and expanded initiatives towards achieving the objectives set out in the Common Minimum Programme, the pleasant surprise comes in the form of only a marginally higher overall tax burden both direct and indirect, which is largely contrary to expectations of industry and market.

    Negative: The imposition of service tax on life insurance, as proposed in Union Budget, serves as a disincentive for the growth of a high-potential, but yet nascent industry. The pinch will be felt most by the consumer, who would pay 10% over and above his/her risk premium for a specific sum assured. Also, it will be administratively difficult to estimate the base for taxation, as proportion of premium towards pure insurance cover would not be the same for different products & consumers of different ages.

    Pfn: Identify one thing that you would have liked to see in the budget.

    Ms. Sharma : The world over, pensions have been driven by tax exemptions. It is only such measures that will encourage the majority of people, who have no secure savings for their retirement, to build a substantial retirement kitty. The current limit of Rs 10,000 under Sec 80 CCC (1) is inadequate to build a reasonable retirement kitty and we were hoping that the government this year would increase the limit to boost retirement savings.

    Pfn: How does this budget compare with Mr. Chidambaram's 1997 dream budget?

    Ms. Sharma : The current budget is not really comparable to the 1997 budget. While the focus in 1997 was on business and industry, the thrust of the latest budget is clearly on the rural sector and the poor economy. The 1997 budget was targeting big-ticket reforms in the industry while the current budget is more pragmatic and is attempting fiscal consolidation.

    Pfn: What is your reaction to the move on increasing the cap on FDI in insurance sector?

    Ms. Sharma :Increasing the FDI limit for the insurance sector to 49% is positive move by the Finance Minister, and in line with his former budget initiatives to liberalise the insurance industry in the country. Such an increase has been discussed for a long time and was inevitable. The move is encouraging, as it will facilitate a huge inflow of FDI into the country, which can be ploughed into long-term projects and building infrastructure.

    Pfn:How does the service tax work in case of insurance industry? What would be its impact at the individual level?

    Ms. Sharma :The service tax will be levied on the risk portion of the insurance premium. While the risk portion of the premium is quite evident in a term or a linked policy, it is not so in the traditional endowment and cashback policies. Moreover, the risk premium keeps changing from year to year, and will vary between products, so administratively it will be a complex task to manage it and explain it to the customer. The other aspect we are awaiting clarification on is whether the tax will be levied only on new policies or with retrospective effect. Once we have this clarity, we can determine the impact to the customer.

    Pfn:What strategy should an insurance seeker adopt going forward?

    Ms. Sharma : The strategy for a person seeking to buy life insurance need not change. One must conduct a thorough personal finance review, which takes into account one's current lifestage, future financial goals and risk appetite. Only then can one determine what level of cover they require and how they should allocate their money across different asset classes. Based on this information, one can purchase a policy that best suits him/her.

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