Republic of Fear

Prime Minister Manmohan Singh has correctly pointed out that we worry too much about risks. Fears that Indian companies will be destroyed if India opens up to trade and industry have dominated the Indian psyche for a very long time. Before 1991, there used to be fears that if FDI was allowed into manufacturing, Indian manufacturing would collapse. When this did not happen, we still worried that when quantitative restrictions go, the country would be inundated with foreign imports. Growth in the import of consumer goods however did not rise yet we still continued to worry about liberalisation in whichever sector it had not been done.

In the period since 1991, Indian companies had again and again proved that these fears are unfounded. Whenever the government opened up a sector to global competition, Indian companies rose to the challenge. One such case was the liberalisation of the insurance sector which led to a sharp growth in this sector. Between 2000 and 2005, the number of insurers have gone up and the premium underwritten by the industry has nearly doubled, from Rs 45,000 crore to over Rs 83,000 crore. New products have been launched and tailor-made for different consumers.

It was feared that the Life Insurance Corporation (LIC) would not be able to meet the challenge of competition from savvy foreign insurance companies, but this did not happen. LIC increased its business substantially after the sector was liberalised. The number of individual life insurance policies increased from Rs 126 million in 2001-’02 to 154 million in 2003-’04, with the premium receivable increasing from Rs 44,734 crore to Rs 62,465 crore over this period. The number of pension schemes increased from 1 million to 1.5 million over the same period. Similar growth has been been seen in all other business areas. LIC showed us that yet again our fears that Indian companies are weak and that it is too risky to open up to competition are unfounded. The same trepidations are now being voiced about FDI in retail. Without doubt, Indian entrepreneurs will demonstrate to the world once again that these fears are without basis.