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K Seshadri
In proposing to introduce three bills, the BJP appears to be putting in a determined effort to restore its image. The insurance bill, the bill for reservation of quota for women in parliament and the state reorganisation bill are slated to be taken up in the house. Unfortunately, though, everything is marked with more valour than wisdom. Wisdom and quality are scarce in the present government.
Take the insurance bill. The quality of information is abysmally poor. All the public has heard repeatedly is that the bill is necessary to attract badly needed funds for development of infrastructure. But the labour is afraid of losing jobs. Actually, the BJP could have added much more depth to its arguments than plain assurances on the job front. Let us look at some of these.
According to the latest Asian Development Bank report, India needs to invest $220 billion in infrastructure over the next five years. Other sources talk of an investment of $10 billion to $20 billion per year. Will the insurance liberalisation bring about the impression that is being sought to be created?
Of the life and non-life insurance business in this country, life insurance generates a premium income of around Rs 19,252 crore, going by the latest figures. The industry is growing at roughly 15-20 per cent per year. The general insurance business is reported to have created a premium income of around Rs 7,300 crore last year. So how will the entry of private players help in mobilising the figure being quoted by Madan Lal Khurana, $150 billion, that is needed over the next five years.
Surely, some estimates have argued that there is a potential to generate an additional Rs 25,000 crore of life insurance premiums every year, tapping into the young population in the middle income group. If this was really so, has LIC has been inefficient? And if indeed if it was a case of managerial incompetence, why did the finance ministry over the last two years not think of sorting this out. They could have called in a foreign consultancy firm to look into the market potential and see if LIC was at fault. Better still, they could have hired a well experienced foreign wizard to head LIC to see if the business could have been improved. You would have been better informed by now.
Seriously, the left parties should ask the government to table a white paper on the insurance bill. Not that I am not aware of the small benefits that the entry of foreign companies will bring. In insisting on a better quality of information and discussion via a white paper, the opposition would contribute to increasing the quality of management of national policies vastly.
Back to the insurance bill. What would the entry of foreign companies bring in? In terms of equity capital, around 100 potential companies being set up with an equity capital of Rs 10 crore each can bring in just about Rs 1,000 crore. These figures are based on the Sri Lankan experience. Since India is much bigger, you can expect around Rs 3,000 crore. And since only 40 per cent will be foreign funds, you are talking of about Rs 1,450 crore approximately.
Does the government have an estimate, a target? And are we liberalising just for this paltry amount? And if the government is desperate even for this amount, why is the foreign direct investment going down? Does the government have an answer?
On the negative side, I do not see how the entry of foreign players could end up doubling the annual premium generated from the present growth rate of 20 per cent to 40 per cent. Doubling of growth will add Rs 20,000 crore per year. But if that was to happen, why could LIC not achieve it? LIC must be asked for an answer before we proceed with the bill.
Don't let the bill go through on gross assumptions, which may never come true. LIC has 1.25 lakh employees and 5.33 lakh agents. With the economy not doing so well, one has to carefully weigh between the cost and the benefits. The cost could well mean taking away business from LIC instead of growth in industry. This, in turn, would hurt employment, especially in bad times.
As to the benefit to the consumer, there is no yardstick to go by. The premiums charged abroad cannot form a guideline as the life expectancy there is very different. So there is no guarantee that premiums are going to be lower. On the contrary, a survey on the multinational insurance companies would have revealed their premium strategies in different markets. That would have enabled the government to make a better informed decision. Has the government done this homework?
The same argument goes for general insurance, though here the market growth can be more in tune with the economic growth. But in either case, the entry of foreign insurers is not going to be able to generate more than Rs 10,000 crore additionally. And who knows the same could be achieved by national companies if they were given a whip, and if the target was really feasible.
And now compare the generation of Rs 10,000 crore with the funds already with SBI in terms of the resurgent bonds. Can the government tell the parliament what amount of the funds garnered via the resurgent bonds have been invested in the infrastructure sector? I am afraid it would not be much, for everyone knows that what is lacking is not funds alone.
Even though the necessary legal framework and policy guidelines have, of late, been built up, the sector has not attracted any heavy investment. Quite plausibly, the reason is that such investments are not economically viable.
So, the government has to look deeper than take an ad hoc and spasmodic approach. Gross approach to management would do no justice to the party and would do much damage to the nation. In fact, gross approach and indifference in management are causing serious anxiety. Take the finance ministry, for example. The ministry could do well with a dialogue with those who do not agree with its current policies.
Claude Smadja, president of World Economic Forum has cautioned on the fiscal front. Sinha has ignored this. Former RBI governor C Rangarajan, too, has sounded a note of caution on money supply growth and former finance minister P Chidambaram has criticised the present finance minister for not formulating the budget properly. Criticisms are healthy and controversies help clarify issues. One may recall Chidambaram's criticism earlier of the performance of the ministry of agriculture in his own government.
The point is criticisms should be made and countered with proper dialogue. Blind discounting does no good to anyone. It is time the prime minister gave more attention to the criticism about his government and looked into the quality of national management. He could well leave the political management to his team, but must himself spend more time assessing the performance of his government and making necessary amends.
Delegating work to political appointees at the ministerial level is not producing the desired results in areas of finance, agriculture and commerce. The prime minister must rise above defending his inadequate ministers.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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