Impact of GST on Insurance Schemes as a Financial Inclusion

Abstract Financial inclusion means accessibility of financial services, such as essential financial services, at a reasonable cost to all society groups, majorly low-income and vulnerable groups in a society. Insurance schemes are an important element of financial inclusion, as they provide financial protection against risks such as health, accidents, death, and crop loss. In India, some of the insurance schemes that help to enhance financial inclusion, like Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, and Pradhan Mantri Fasal Bima Yojana, increase the risk coverage among vulnerable groups. In 2017 GST was introduced in India, which led to drastic changes in the indirect tax system, including the taxation of insurance services. This paper examines how GST has affected financial inclusion through insurance schemes. The study explains that even though GST increased the overall cost, the impact on beneficiaries is very small because of government subsidies and support. As it leads to continuous growth in financial inclusion through insurance schemes in India. Keywords: Financial Inclusion, Insurance Schemes, PMJJBY, PMSBY, PMFBY, GST 1. Introduction Financial inclusion refers to the accessibility and affordability of financial services such as banking, insurance, credit, and pension facilities to all groups of society. Financial inclusion contributes to economic development and poverty reduction. Insurance schemes play an important role in financial inclusion to protect against health, accident, or death financial risks. The government of India introduced several insurance schemes to improve financial inclusion, such as PMJJBY, PMSBY, AB-PMJAY, and PMFBY. The scheme is developed to access a high number of vulnerable groups, for which the government is continuously supporting and designing it. However, GST may affect effectiveness and affordability. 2. Literature Review Sinha, Tapen (2017), in his paper published in the Journal of Insurance and Risk Management, explains that taxation on insurance products can affect demand, particularly among low-income groups. The higher indirect taxes may demotivate participation in insurance schemes developed for financial inclusion. IRDAI (2021) examined that schemes like PMJJBY and PMSY have attracted more enrollment because of their lower premium cost and government support and subsidies. The report explains that enrollment in the insurance scheme is stable even after the introduction of GST and has less impact on financial inclusion. Kumar Rajiv, and Agarwal, Nisha, (2019), International Journal of Research in Finance and Marketing examines that GST increased the insurance cost. Even though, it is not affected by the insurance scheme because of government subsidies. The National Health Authority (2022), in its report on Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, mentions that GST does not affect its beneficiaries because of fully subsidized health insurance schemes. Since the government bears the cost, GST does not influence participation since it strengthens financial inclusion. Raju, S. S., and Chand, Ramesh (2020), in their paper published by the National Institution for Transforming India (NITI Aayog), highlighted Pradhan Mantri Fasal Bima Yojana and its role in increasing financial inclusion among farmers. The study explains GST is not affecting farmers directly due to government subsidies and premium structure. Ghosh, Saibal (2021), in Economic and Political Weekly, explains insurance schemes are becoming successful due to government support. The paper argues that taxation policies like GST have less impact when government funding acts as subsidies. Sharma, Rakesh (2022) “Journal of Public Finance and Policy examines the relationship between GST and insurance. In the future, they suggested reducing the GST rate to enhance the financial inclusion activity among low-income people. Patel, Mehul, and Singh, Kavita (2021), International Journal of Economics and Financial Issues, explain Aam Aadmi Bima Yojana and explain that government support schemes are not affected by GST. 3. Research Gap Many studies discussed GST and insurance schemes; very little focus was specifically on financial inclusion schemes. There is also less research that compares the various insurance schemes. This study focuses on filling this gap by analyzing the impact of GST across multiple financial inclusion insurance schemes. 4. Objectives 1. To study the impact of GST on financial inclusion through insurance schemes. 2. To examine how GST affects the affordability of the insurance scheme. 3. To analyze the post GST enrollment of insurance schemes 4. To evaluate the role of government subsidies in insurance schemes 5. To compare the impact across different insurance schemes of financial inclusion 5. Research Methodology ⮚ Type of Study: This paper is mainly on the basis of conceptual and analytical. ⮚ Data Source: The information collected though secondary data like reports, journals, government publications, research papers, insurance industry publications, and IRDAI reports ⮚ Method: This research is mainly a Comparative analysis of pre-GST and post-GST periods. 6. Conceptual Framework GST----Insurance Cost----Affordability----Enrollment----Financial Inclusion (Government support and subsidies reduce the negative impact.) 7. Hypotheses H1: GST will affect the affordability of insurance schemes H2: Affordability will influence enrolment of insurance schemes H3: GST will reduce enrolment without government subsidies H4: Government subsidies will reduce GST impact on insurance schemes. Data Used Schemes Premium with subsidy Premium without subsidy Enrolment PMJJBY 436 436 7 crore PMSBY 20 20 30 crore AB-PMJAY 0 5900 50 crore PMFBY 150 5900 6 crore Per Capital income = Rs 120000 (targeted Group) GST Rate = 18% Statistical Tool ✔ Affordability Index ✔ Simple linear Model (E=kA) ✔ Percentage change analysis ✔ Comparative Analysis H1: GST will affect the affordability of insurance schemes Tool: Affordability Index Affordability = Income/Premium Schemes Formula Affordability=Income/Premium Impact of GST With Subsidy with GST Without Subsidy with GST PMJJBY 120000/436 =275 120000/436 =275 No Changes No effect PMSBY 120000/20=6000 120000/20=6000 No Changes AB-PMJAY 120000/0 = infinity 120000/5900 = 20.30 Without subsidy affordability will collapses With Subsidy affordability increases PMFBY 120000/150 = 800 120000/5900 = 20.30 H1 is accepted since GST reduce affordability, but subsidies avoids its impact H2: Affordability will influences enrolment of insurance schemes Tool: Simple Linear Model (Basic Formula) E=b x A Where E = Enrolment, b = Constant, A=Affordability Therefore if when A increases E also Increase Schemes Premium Affordability Enrolment PMJJBY 436 275 7 crore PMSBY 20 6000 30 crore AB-PMJAY 0 Very high 50 crore PMFBY 150 800 6 crore H2 is accepted therefore affordability increases leads to increases in enrolment. H3: GST will reduce enrolment without government subsidies Tool: Percentage Change Method % changes= old-new/old x 100 Schemes With Subsidy Enrolment Without Subsidy Enrolment Percentage Change Method %changes = old-new/old x 100 PMJJBY 7 crore 6 crore (7-6/7)(100) = 14.3% PMSBY 30 crore 25 crore (30-25/30)(100) = 16.7% AB-PMJAY 50 crore 10 crore (50-10/50)(100) = 80% PMFBY 6 crore 2 crore (6-2/6)(100) = 66.7% H3 is accepted because, without subsidy, GST increases Premium which leads to reduction in enrolment. H4: Government subsidies will reduce GST impact on insurance schemes. Tool: Comparison Method I. Premium Comparison Schemes With Subsidy Premium Without Subsidy Premium PMJJBY 436 436 PMSBY 20 20 AB-PMJAY 0 5900 PMFBY 150 5900 II. Affordability Comparison Schemes With Subsidy Affordability Without Subsidy Affordability PMJJBY 275 275 PMSBY 6000 6000 AB-PMJAY Very High 20.3 PMFBY 800 20.3 III. Enrolment Comparison Schemes With Subsidy Enrolment Without Subsidy Enrolment PMJJBY 7 crore 6 crore PMSBY 30 crore 25 crore AB-PMJAY 50 crore 10 crore PMFBY 6 crore 2 crore H4 is accepted, Subsidies reduce the impact of GST by reducing the premium which leads to and increase the affordability which leads to increase the enrolment rate Overall Summary of Hypothesis Hypothesis Tool Used Result H1 Affordability Index 97% affordability decrease without subsidy H2 Linear Model Enrolment Increase when Affordability Increase H3 % changes without subsidy, GST increases Premium which leads to reduction in enrolment. H4 Comparison Subsidies reduce the impact of GST by reducing the premium which leads to and increase the affordability which leads to increase the enrolment rate 8. Analysis and Discussion ⮚ Affordability GST increased the tax rate from 15 to 18% on insurance services, which raised the premium cost. However, financial inclusion schemes are subsidized and supported by the government, so the burden on beneficiaries is less. ⮚ Enrollment Even with the implication of GST, enrollment in insurance schemes are continuously on a