100% foreign direct investment and VAT exemption indicate a strong boost for insurance in the 2026 budget

The government’s recent announcement to introduce 100 percent foreign direct investment in the insurance sector has “empowered the regulators,” said LIC director Dinesh Pant. He further noted that India’s focus on its insurance sector through key announcements in Budget 2026, along with recent policy changes such as a reduction in VAT and the Insurance Amendment Bill (announced in December) shows the government’s intention towards “recognition of insurance as a historic engine of economic growth and its importance in bridging India’s protection gap.”

In an interview with ANI, Pant highlighted the government’s continued efforts to achieve its target of “Insurance for All by 2047”. He said: “The budget, along with the recent policy changes, highlights the government’s strong focus on the insurance sector.”

Roadmap for reforms

Speaking about the recent GST cut and the Insurance Act, he said: “Key reforms include the GST Cut and the Insurance Act (December), which introduced 100% FDI, gave more powers to regulators and reduced capital requirements for insurers.”

The government recently announced a reduction in GST on individual life and health insurance policies from 18 percent to zero, with effect from September 22, 2025. All individual life insurance policies (Term, ULIP, Endowment) and health insurance policies (Individual, Family Floater, Senior Citizen) are now exempt from GST, allowing insurance companies to pass on more savings to you.

This move is intended to make essential financial protection more affordable to the general public. “The government is also forcing insurance companies to rethink cost allocation and improve service quality, especially with regard to distribution costs,” Pant said in the interview.

Capex boost

Talking about the capex increase announced in Budget 2026. He said, “The budget increased capital expenditure (capex) from ₹11.4 to 12.2 lakh crore.”

Pant sees this as a significant improvement, especially considering the capital expenditure utilization of 97 percent in the previous year, which has a multiplier effect on the economy and infrastructure development. He also highlights the government’s management of the budget deficit and credit levels while increasing capital investment as “really noticeable.”

Economic prospects

Speaking about the economic outlook, he said, “GDP growth for FY26-27 is projected at 7.4%, up from 6.5%. Despite positive economic indicators, there has been market volatility and a weakening rupee due to international trade agreements.”

Published on February 4, 2026