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The prime minister did the right thing in asking finance minister Yashwant Sinha to tell the World Economic Forum that the government stood by its decision to open up the insurance sector to competition and foreign investment. The unfortunate impression that the government was vacillating on insurance reform was created by two cabinet colleagues (the minister for parliamentary affairs and the minister for power). But their reasons for trying to stall insurance reform are not clear. The Swadeshi Jagaran Manch, which speaks for the RSS, is opposed to opening up insurance. This dissent has presumably acquired significance in the wake of the electoral debacle of the BJP. However, the seige within steeled the prime minister's resolve to push through insurance reform. Barring the left parties, others including the Congress and Janata, want the IRA bill through. So it is nonsense to suggest that insurance reform will not pass muster in Parliament.
The Left-RSS opposition to insurance reform makes little sense. Theentry of foreign insurers under the joint sector umbrella will not drive out Indian insurers. This kind of fear may be valid in the case of manufactures, but not in a service industry like insurance (and banking). Foreign insurers cannot siphon out premiums, so long as the rupee remains non-convertible in the capital account. They can only take out profits. Besides, under the joint sector arrangement, foreign equity participation is proposed to be held at 40 per cent. The answer to the question why more insurance companies (now in the private sector) is simple: the public sector monopoly in life and general insurance has ceased to be creative. The result is that India is heavily underinsured. LIC and GIC need to be prodded by competition.
But why an Insurance Regulatory Authority to licence new entrants? Will this not limit the number of players and hold down competition? There is need for clarity on the objectives of opening up insurance. The assumption that since insurance companies incur long termliabilities, more insurance companies will necessarily mean more investment in long term assets -- that is, in infrastructure--may turn out to be facile. True, insurers prefer to invest in infrastructure industries because these are not affected by business cycles. But investment in infrastructure must be viable. This will require tariff changes and reform to ensure efficient revenue collection. In short, infrastructure must be investment-worthy for insurers. This is not the case at present, judging by the dearth of investors in infrastructure. Insurance reform puts the cart before the horse.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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