Economist’s Column INSURANCE BILL TO WOO FOREIGN INVESTOR

By Ishita Mukhopadhyay

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Insurance bill was introduced in the Parliament in the middle of this month. The last three years have witnessed massive protests against the Bill throughout the country. Not only the insurance employees, but also people from all sections participated in a mass upsurge against introduction of the bill in the Parliament. The entire working class of the country has explicitly expressed their opinion against the bill. But why these factors did not act as a deterrent to the BJP government at the centre from introduction of the bill? One needs to remember that the process of privatisation of insurance agencies started in 1994, when Malhotra Committee prescribed the privatisation scheme and opening up of the agencies to foreign investors. However this was a part of the ongoing process of privatisation, liberalisation and globalisation process within the country. This was in fact a part of the financial liberalisation process introduced in a phase-wise process in the country. When the opening-up policy was introduced in 1992, it was rightly expected that the entire economy would be in the clutches of the similar type of policy. IMF was also pressing for reforms to be introduced in the case of financial services. But since the designers of the reforms knew clearly the disastrous implications of such opening up, they prescribed the opening-up process to be introduced in phases. Phases would mean a phasing of people's tolerance to discomfort also.

Insurance is a financial service. So financial liberalisation is never complete without reforms being introduced in the insurance sector. One can trace the events in this regard right from April 1993 to December 1998. The process seems a clear process of making the people bear the unbearable. The Malhotra Committee started the proceedings in May-June 1993. The committee prescribed opening up to foreign investors in January 1994. Insurance Regulatory Authority was formed in February 1996. K.C.Mittal of General Insurance was appointed as vice- president of the Authority. N.I. Rangachari was appointed as intermediate president. P. Chidambaram, Minister of Finance in the United Front government made the bill explicit first in December 1996. But it was returned from the Parliament in 1997 due to tremendous protest raised by the opposition. However BJP too was in a dilemma regarding introduction of the Bill.

But, again let me come back to the central question of this discussion. What compelled Atal Behari Vajpayee and Lalkrishna Advani to go for it? Advani confessed in public discussion that we have been forced to privatise insurance to woo foreign investors. Foreign investors should be given priority and an open field to play so that they can invest more. But the question that remains to be settled is that whether the extent of foreign investment that had entered in this country had been really profitable for us or not. Was it possible to raise the welfare of the masses due to the investment? Or, the increase in welfare has not been satisfactory due to dearth of foreign investment? How was it that only dearth of adequate foreign funds have been unilaterally isolated as the cause for all of our problems and we have turned to frantic submission to all conditions only to attract foreign funds?

Insurance is a sector, which possesses tremendous scope for expansion. The coverage of insurance in our country is much less compared to many other counterparts. The sector records a trade of only 2 billion US $. The share of this sector in the GNP is only 1.3 %, whereas the world average in this respect is 7.8%. The share of insurance premiums in the savings of the country is only 5.9% and the share is 52.1% in Britain. Hence there is scope foe extension of the service to the people in general as people's demands are remaining to be fulfilled. As foreign investors in this respect are facing a practical closure of the opportunities for expansion in their own countries, they need to invest in our country. But this is a vital sector, which has built up relationship of the public sector with the people. This relationship will cease to exist with privatisation.

When it is absolutely clear that the major part of foreign investors have really played with our markets and people by engaging in speculative activity, why do we need to woo them? We still do not know the beneficiaries of all the mergers and acquisitions that have taken place in our country.

The Pokhran blast has brought in initiation of a series of damage control measures in the Indian economy. This may be compulsion under that scheme. In the guise of Swadeshi, it is really the external forces that BJP is willing to appease. They are trying to do what the East Asian Tigers had also not dared. They have decided to allow foreign equity share upto 26%. But Malaysia, Philippines and Thailand allowed this only upto a maximum of 10%. Indonesia raised it to 20%. But India went a step ahead in the process of wooing. The government is yet to reply the big question: after all that had happened-- after rising inflation and unemployment, why again…?