The drafting of certain provisions of the Insurance Regulatory and Development Authority Bill seems to leave a lot to be desired. One gaping loophole has been brought out by none other than the chairman of the Insurance Regulatory Authority. Replying to queries whether multinationals formed and incorporated in India would fall outside the purview of the 26 per cent ceiling on foreign investment in insurance companies, Rangachari in effect replied in the affirmative. That raises a whole lot of questions. What is to prevent an MNC from getting hold of a shell company in India (and thousands of them exist), capitalising it, and then entering the insurance sector. One hundred per cent subsidiaries of foreign companies also qualify as Indian companies, and they will be under the absolute control of foreign owners. Surely that is not the intention of stipulating a 26 per cent ceiling. Fortunately the IRA chairman is alive to the threat, and has said that he would not allow financial engineering to dilute thespirit of the stipulation.
The point is pretty simple. Once it has been decided that foreign ownership should be restricted to 26 per cent, then the laws should be framed so as to reflect that intention unambiguously. We should not, as far as possible, be dependent on the interpretation of the IRA, or the FIPB, on a case by case basis. Now that the loophole has been discovered, no time should be lost in closing it.
Yet another disquieting feature of the proposed insurance legislation is the requirement for surrendering licences to the IRA. This in effect means that there will be no exit for players in the industry. If a company tries its hand at the business and finds that it cannot make money on it, does it mean that it will be precluded from selling its assets and its brand equity? Grey areas such as these need to be clarified.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.