The inconclusive end to Monday’s all-party meeting called by the government to hammer out a consensus over the insurance bill before it can be taken up in Rajya Sabha is unsurprising. Posturing by key political parties, on the treasury benches or in the opposition, has repeatedly stymied efforts to liberalise this crucial sector in the past. Having cleared the long-awaited hike in the cap on foreign investment in the budget, the NDA government has moved 97 amendments to the Insurance Laws (Amendment) Bill, 2008. For the Congress, the contentious point is the composite cap of 49 per cent including “hot” FII investments.
The arguments have come full circle. The proposal to have a 49 per cent cap on foreign investment was first proposed by the last NDA government, when Yashwant Sinha was finance minister. The Congress, at that time, opposed the move and the government was forced to fix the cap at 26 per cent. Subsequently, when the Congress-led UPA came to power, the cabinet moved to hike the insurance FDI limits in October 2012, but the BJP’s opposition forced it to drop the proposal as it did not have the requisite numbers in Parliament. Now, the roles have again been reversed, with the NDA wanting to hike the cap but falling short of the requisite numbers in the Upper House.
Like the pension sector and multi-brand retail, insurance has been an area where the policy debate in India has been considerably influenced by the ownership issue. Across countries, the level of FDI caps in this sector differs, with Indonesia and Malaysia having FDI limits of 80 and 51 per cent respectively. Japan, South Korea, Vietnam and Taiwan allow 100 per cent FDI, while in China, the cap is 74 per cent, even though there are restrictions on life insurance firms repatriating premium money abroad. From an investor’s point of view, insurance is a capital-intensive business that entails a long gestation for recovery of investments. Given its demographic profile, India has always been an attractive market for global insurers, with just 6 per cent of its 1.2 billion population having insurance cover. The move to hike the cap to 49 per cent could bring in an estimated Rs 22,000 crore in capital, with a better capitalised insurance sector critical in raising long-term funds that can cater to the needs of the country’s creaky infrastructure. What is needed is a clear mandate for investors. Political parties must pause and reflect on their respective positions when they were on the other side of the divide.