IRA Bill


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Turning a deaf ear to the nationwide vociferous protest, brushing aside the voices of dissidence within, the ruling BJP led Government at the Centre has introduced the Insurance Regulatory Authority Bill in Parliament on 15th December, 1998, amidst full throated resistance by the opposition parties, except the Congress (I). The ruling coalition has also obliged the main opposition party in the Parliament, the Congress (I), by agreeing to the Bill being vetted by a joint select committee of the two houses.

The intent is to propitiate the Fund Bank WTO. Rather it is command obedience by the `Swadeshi' Government. The RSS, Swadeshi Jagran Manch, ruling party MPs who still refuse to digest the move all have been left sobbing in the lobby. This, together with the introduction of Patent Law Amendment Bill, preceded by a mini expansion of the Cabinet, is sought to be projected as an iron willed assertion by an otherwise non-performer Prime Minister, Atal Behari Vajpayee. No, he would not budge even an inch, no dilution of the 40% equity limit for the foreign and not so foreign (NRI) players.

When the commitment of the BJP not to open up the insurance sector for foreign players, solemnly undertaken in their party manifesto and reaffirmed in the National Agenda for Governance was pointed out, Yashwant Sinha, the Finance Minister justified the volte face stating `it was not for the first time that a ruling party had altered its policy after coming to power.'

But for whom the IRA Bill tolls? The stated objective of the Government in bringing up this Bill is "to provide for setting up of an Insurance Regulatory Authority to protect the interests of insurance policy holders and to regulate, promote and ensure the growth of the insurance industry."

The Government has no explanation whatsoever to offer as to why this objective cannot be realised without throwing open this important sector to private plunderers of profit from within and outside the country.

The Finance Minister strongly refuted charges that the Government was bowing to external pressure and adopting backdoor means for a sell out of the country's economic interests. He proudly proclaimed: "We are not hiding anything. There is no backdoor approach."

Perhaps the Minister has inadvertently admitted that his Government is selling the Indian economy by the front door itself.

This process was set in motion with the Malhotra Committee Report, in January 1994, emphatically recommending that "the private sector should be allowed to enter insurance business." The Committee also listed `certain excuses' in justification:

The Government anxiety to mobilise resources to meet the enormous cost of infrastructure, requiring Rs 700,000 crore (US $ 200 billion) in the next five years, through sourcing foreign capital, seems to have added an urgent dimension to this exercise.

The bait that Frank Wisner, former US Ambassador in India, threw in August 1994 prompts the Government. He said, "The insurance sector is the flagship of American business. You let it in, and the rest of the fleet will follow in full strength."

There is no evidence after liberalisation since 1991 that foreign investors are willing to invest in infrastructure. Even Indian companies, which have profited enormously after liberalisation, have not cared to invest in infrastructure. There is evidence that they will not invest unless Enron like terms with return of 16% with counter guarantee and adjustment to exchange rate are given. Moreover, the cost of unit of power is three times more than the international rate. The enormity of cost of infrastructural services in such background can well be imagined.

According to World Investment Report 1997 & Trade & Development Report published by UNCTAD out of $ 350 billion of FDI worldwide, 75% was utilised for merger and acquisitions and only the rest was available for real investment. Even out of this, the largest bulk was invested in first tier emerging economies. Countries like India received very little. The position is not different as per World Investment Report 1998, published recently.

The 1997 report illustrated how there was no adequate FDI to go around if at all developing countries aspire even for 12.8 billion dollars, which Malaysia attracted at that time. The World Investment Report has clearly stated that the industrial countries will allow FDI only after meeting their own requirements.

The Economist of London, a couple of months back, carried a report that it was futile for third world countries to expect increased FDI particularly for infrastructure because the power projects and other infrastructure facilities in Germany, Britain, France, US etc have come up for renewal and more investment would be required in these countries.

Therefore, biting the bait Frank Wisner offered may end as a foul taste in the mouth. Yet the Government persists.

The assertion that competition alone would lead to improvement is not correct. Particularly in the Indian situation, with huge income disparities, competition would subject LIC and GIC to a war of attrition. In the process, their monumental resource mobilisation effort would be undermined. Insurance is a highly protected market, in the advanced industrial countries. For example, in the USA, American insurance companies control 97 per cent of the premium. Insurance registration laws are more stringent, compared to anywhere else. though large numbers of companies are operating, most of them are insignificant and a few companies control the market. Insurance is, therefore, a highly monopolised market too, with a few MNCs ruling the roost.

What about the myth of private and foreign players chipping in with their bit to speed up the spread of insurance in India?

Foreign companies would be enabled to operate in the Indian market in order to capture bigger portion of market potential because of their enormous financial clout. Operating in India to share the Indian market, they would resort to dubious methods. They would not provide social insurance. They would operate to skim the prime areas of insurance operations, for profit. They would shun operations in rural areas. They would not provide subsidised insurance cover as LIC and GIC are doing. Their enormous resources would enable them to undercut premium to such an extent as to capture the market and elbow out the Indian companies, both public and private. They can wait for profits to come later. The Chairman of New York Life Worldwide Is Holding, Mr. William Yelverton said that they would not be worried about profit initially. They would wait for several years to strike even and profits would automatically come (Source: Economic Times). A report in Business Line, August 10, 1996, says, "The total breakeven period estimated by foreign insurance majors is at least seven years." This means ruthless undercutting and other malpractice would be resorted to in order to gain market domination. To expect in such situation that Insurance business would be better developed by private and foreign companies and insurance customers better served, while at the same time providing huge resources for infrastructure development, is impracticable.

Financial Express dated July 20, 196, based on an interview of top executive of insurance majors with FENS, writes as follows:

"Insurance MNCs that are waiting for the opening up of the industry are targeting only the lucrative sectors such as corporate insurance according to officials of General Accident, Sun Alliance and AIG."

In an interview with FENS, Jon Brice ACII of GA Plc said that his company was not interested in taking up motor insurance in this country as that would not generate profits.

Jon H Chambreu, General Manager AIG, also said that he would target the corporate sector initially and then personal insurance sector. None of them were interested in cattle, crop, rural and health sectors, but all wanted a hefty slice of profitable sector. "

"Going by their words, there appears to be real danger for the Indian insurance industry, if the industry is thrown open."

As for the `enviable' privilege enjoyed by the Banking Sector that has the presence of domestic and international players, the less said the better. We already have experience of foreign banks that do not fulfil social obligations in terms of investments etc., imposed by law. They utilise every loophole available. RBI has not been in a position to control this. In the Securities scam the amount of Rs 700 crores mis-utilised by four foreign banks is yet to be recovered. RBI is helpless. Foreign banks operating from urban areas have taken away over Rs 1000 crores as profit every year without fulfilling any social obligation. They are not known to have invested in any infrastructure which foreign insurance companies/investors are expected to do. Experience with insurance investors cannot be different.

The US and other advanced capitalist countries are constantly goading Indian to open the insurance sector. But they keep their own market a close preserve.

In WTO negotiations on financial services and Insurance, settlement could not be reached mainly because many of the industrial countries, apart from third world countries, did not agree to open up their Insurance industry. Negotiations have been postponed to the year 2000. Why should Government of India be in hurry to enter the arena which has been shunned by advanced industrial countries? In the US market insurance industry enjoys special protection against inroads from foreign insurance companies. Germany, France and Switzerland have kept out foreign insurance companies. Japan has also not opened its insurance sector in spite of the fact that some years back it was threatened along with India and Brazil by US for action under the provisions of its trade law " Super 301."

The shares of foreign insurers in domestic market in some of these countries illustrate this point vividly.

In retrospect, what has been the record of the nationalized insurance sector in India? The All India Insurance Employees' Association has presented a record sheet of the performance of LIC & GIC as under:

LIC & GIC in the public sector are functioning efficiently. The equity invested by the Government is very low being Rs 5 crores and Rs 21.5 crores respectively. Without additional need for investment in equity, LIC & GIC have thrown up enormous surpluses and paying dividend and corporate taxes to the government.

Dividend given since inception on investment of Rs 5 crores – Rs1326.00 crores

In addition, from out of income, after meeting current expenses and current liabilities including claim payments, surplus generated in 1997-98 in LIC & GIC was over Rs 20,000 crores.

In the 8th five year plan as against the target of Rs 25,000 crores LIC invested Rs 56097 crores

In a the 9th five year plan in the first year itself the investment by LIC has been over Rs 18,000 crores

At the present level of growth during the 9th five year plan period LIC alone would be in a position to invest more than Rs 1 lakh crores and along with GIC more than Rs 1.30 lakh crores. This could be more given the fact that growth of LIC and GIC is between 18 to 20% annually.

Despite all these startling facts, the BJP-led Government is in mad hurry to go ahead with the passage of IRA Bill. It is the sacred duty of every patriotic force and citizen in the country to halt the BJP Government in its track, to prevent the country being let loose shunted on the rails to disaster.