1. Editorial: Some progress insured

Editorial: Some progress insured

Compromise on insurance, but at least it’s through

By: | Published: December 12, 2014 12:08 AM

Amidst the gloomy news on the GST Bill, the good thing about the insurance bill is that at least it is through, now that the Select Committee has submitted its report. So, at a time when India’s health and life insurance needs are growing rapidly—according to the Insurance Regulatory and Development Authority, the sector needs R55,000 crore in just the next 5 years—and Indian entrepreneurs don’t have the necessary financial muscle to put in more money, increasing the FDI cap will go a long way in ensuring Indians have better insurance cover. As one of the presentations to the Select Committee pointed out, while Indians spend R3 lakh crore on health expenses each year, just R20,000 crore of this is paid for by health insurers. Given the number of years the government has been pushing for this change, it is a big relief to investors to see it coming through—the irony is that while the BJP is currently piloting the Bill, it is the BJP that played spoiler all these years.

The composite cap for FDI and FII, and the ‘ownership and control’, of course, are two major concessions, though in keeping with India’s overall philosophy of bringing in FDI. In the case of telecom, for instance, while it was foreign partners who had the money and the technology to run the enterprises in the initial years, it was the local partners who got the biggest share of the benefits as they exited at huge premiums once the FDI caps were hiked, first to 74% and later to 100%. Indeed, with the fund-raising by some of the Indian ‘partners’ underwritten by the foreign investors, nameplate capitalism is the only term that best describes the policy. The Select Committee’s recommendation that incremental equity should be brought into company and not by way of buying the shares of the Indian promoter is worrying should it be accepted by the government. Apart from being a throwback to the old socialist days when profits were considered a bad thing, it could create a problem later when Indian partners want to exit. Right now, however, with investors looking to grow the insurance business, that is probably the last thing on their mind. At some point though, the government will need to address this as well as the issue of how giving foreigners control of an enterprise hurts India’s interests—after all, a government coming to power promising to abolish crony capitalism doesn’t want to be promoting nameplate capitalism. And, as our op-ed columnist Menaka Doshi asks, if two of India’s leading private banks are majority-owned by foreigners and that is not a problem, why should it be a problem in the insurance sector?

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