Updated: March 14, 2015 12:00:35 am
Finally, one major economic legislation — enabling 49 per cent foreign investment in insurance firms, up from 26 per cent now — has pushed its way through Parliament. That it took more than six years after the original bill’s introduction and nine months of the present government’s tenure to secure its passage reflects the lack of genuine bipartisanship even on issues where there is no real divergence of opinion. While in opposition, the BJP did not allow the Insurance Bill tabled by the previous UPA government to be passed. Till now, the Congress did the same, despite claiming the proposed reform law as “our baby”. Good sense and a bit of reaching out by the ruling party seems to have helped seal the deal in the fractured Rajya Sabha. But whether the consensus will extend to other legislation — especially on land acquisition, where there is less agreement between parties — is difficult to predict.
The increase in the overseas investment ceiling in insurance is a much-needed reform primarily because this is an industry in which firms need huge capital to expand their business and also adequately provide for all claims against policies issued. Such large-scale capital infusion can come only from specialist foreign insurers. With foreign equity limited to 26 per cent and most domestic promoters in existing joint ventures not in a position to invest the requisite additional capital, the industry is struggling. One indicator of the inability to grow is first-year premium of life insurers, which in 2014, at Rs 73,777 crore, was below the Rs 84,726 crore for 2013 and Rs 86,698 crore for 2012 — this for a country with dismal insurance penetration. Just as tele-density in India wouldn’t have reached the current levels had BSNL or MTNL remained the sole operators, well-capitalised private insurance and pension players who can expand the market and give real competition to LIC and the four public-sector general insurers are needed.
The growth of the insurance and pension sectors — the higher 49 per cent foreign investment cap will now apply to the latter as well — is also important from the standpoint of channelising long-term savings for infrastructure development. Bank deposits are seldom for more than three years, whereas insurance plans stretch for 25-30 years, which is also the kind of money needed for financing infrastructure projects with long gestation periods. Parliament’s approval for the latest reform is a win-win, both from the perspective of financial inclusion as well as for boosting infrastructure investments.
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