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The Rediff Business Interview/Prakash Karat

'Infrastructure won't get any funds if insurance is privatised'

Few bills have had such a chequered history as the Insurance Regulatory (and Development) Authority Bill. It was first sought to be introduced in the Lok Sabha by the Congress government, then by the United Front, and now by the National Democratic Alliance. The issue has also seen strange bedfellows. Political rivals Bharatiya Janata Party and Congress are, so far, in agreement over the IRDA Bill while ideological foes of the left and the right (many of which are affiliated to the BJP) have ganged up to protest against the IRDA bill. Joining the latter are the trade unions of the state-owned Life Insurance Corporation and General Insurance Corporation, who have taken to the streets to let their disagreement be known clearly.

The Communist Party of India-Marxist is strongly opposed to the IRDA Bill and is spearheading the fight against the government's move on insurance. CPI-M polituro member Prakash Karat spoke to Amberish K Diwanji on the opposition to the bill.

Why is the CPI-M opposing the bill though the main opposition Congress is supporting it?

This is the third attempt to pass the bill. First P V Narasimha Rao tried it, then I K Gujral did and now the present NDA government. Our opposition has been there right through, irrespective of which government is there ( incidentally, the CPI-M supported the Gujral government).

We do not think it is a good idea to privatise insurance. That is the basic opposition. We think that the insurance sector that was nationalised over four decades ago (LIC was nationalised in 1956) has served a purpose. It has mobilised resources for our development, for our plans, for our national priorities. We don't see why these resources should be diverted to the private sector that will have its own priorities.

Are you afraid that LIC and GIC would be privatised or are you opposed to the private sector?

Our opposition is to privatisation per se. We are not opposed to the private sector. There is a role for the private sector in our economy, for attracting foreign direct investment or for developing new sectors. But what we are talking about is the privatisation of the public sector. What we are against is the indiscriminate privatisation without taking into account the overall priorities of our country.

Why are you assuming that the insurance sector will not benefit from privatisation or from private companies?

I think there is sufficient evidence for that. Prior to nationalisation, the experience of private companies was not very good. Even internationally today, the experience of the United States of America shows there is a high rate of failure of insurance companies. And whether the service to the consumer is really efficient, is really debatable. There is this new myth that a private company is more efficient and the public sector is inefficient.

Are you saying that the LIC and GIC are efficient?

I didn't say that. What I am saying is that relatively, you have to see the role played by the public sector insurance. I am not arguing that there is nothing wrong with existing insurance sector. In fact, there are quite a few things wrong with the public sector as such. But you modify, you improve, you regulate, do what is needed. But these wrongs is no reason to dismantle the system which has provided you huge funds for your developmental activities.

For example, in the first two years of the Ninth Plan (currently on), the LIC has alone contributed Rs 430 billion. And by the end of the Plan, if allowed to contribute, the estimate is that it will contribute Rs 1.3 trillion! Now these are funds that are not available otherwise, unless of course you decide that the state must have no role at all in any development activity, only private companies must have such a role, a view that we in CPI-M do not share.

Yet, despite this huge amount given by LIC, development funds in India are inadequate. One reason for allowing in private insurance companies is the need for funds for the infrastructure development.

Private insurance companies with foreign investment, whether 26 per cent or 40 per cent or 49 per cent, will have their own priorities. These companies will invest their profits according to what the market considers important. They will not go as per any plan or any such requirement of the state. So infrastructure will not necessarily benefit, as our experience shows. The power sector is a good example. It is today expected that all private sector funds will go to infrastructure, but that is not true. So why kill the goose that lays the golden egg?

Besides opposing the privatisation of LIC and GIC, are you opposed to the entry of private foreign companies into India?

That is the second part of the argument for us. There are two sets of opposition to the ongoing privatisation process. One is ours, which is inherently against privatising insurance or allowing the private sector in, both domestic and foreign. Insurance today is a sector that is fully in the public sector realm.

Opening up to allow private companies is actually the beginning of privatisation. And opening up is to actually privatise the whole insurance sector, including LIC and GIC. Such a move will make both of them just be a pale shadow of what they are at present. Hence our argument is against opening up the insurance sector to private companies. We have asked the government to streamline the public sector in insurance. How it is to be done can be discussed.

The second set of opposition is really a case of allowing domestic companies while barring foreign companies. This is a debate within the BJP and between the BJP and its affiliates, and again between the BJP and Congress and some other parties. But all of them support opening up the insurance sector.

We feel that this debate about percentages, whether to allow foreign private companies stakes of 26 or 40 or up to 49 per cent is misleading. If you are going to allow foreign capital in the financial sector, I think the logic of the reality of international finance is that then foreign capital will play a major role.

Given that globalisation is on the march, can India afford to stay out of it? Can we keep foreign insurance out?

I think we can and I'll tell you how. At the WTO talks in Seattle, liberalising insurance is not one of the topics. The reason is that the US does not want that topic on the agenda. Today, the US insurance sector is closed. No Indian firm can open an insurance company in the US. Also, only three per cent of the premium generated in the US -- I can't recall the total figure -- is by foreign insurance firms, the rest is by domestic American companies. Thus, the US is clearly protecting its companies, but at the same time, they are trying to enter our country. The pressure to open up is from America and some big insurance companies.

We are not saying no FDI (foreign direct investment). But opening up will actually mean giving up control over our financial sector, which generates massive resources for the country, which has massive development needs and gross inequality. We have a social aim that cannot be subordinated to the market needs.

You say you are not against all FDI. So what kind of FDI do you oppose and what kind do you support?

I think there is a distinction between FDI that comes in, by and large, for productive investment that will increase the country's assets and financial flows that come in to speculate on the market. So we will be very happy if FDI comes in areas where we really need them, if FDI gets into new areas, high technology, in areas where we lag behind. There are many areas.

Even here, there are certain priorities. We are asking the government to maximise the incentives in those areas to encourage greater inflows.

What about FDI in the consumer sector?

I am not arguing against FDI in the consumer sector, and I don't want to make that distinction between the computer chip and the potato chip. Private companies have been in the consumer sector for so many years, including foreign ones. What, after all, is Hindustan Lever? I think that they should come into non-consumer and certain consumer industries also.

You fought the elections alongside the Congress against the BJP, yet now, on the insurance issue, you are against the Congress and aligned with some pro-BJP groups?

There is this misleading impression that we fought along with the Congress. We fought with the Congress and against the Congress also. In fact, of the 43 seats the Left got, 40 have come from Tripura, West Bengal and Kerala where we also fought the Congress.

You cannot deny that you did ally with the Congress. And in Bengal, the Congress is hardly a force to reckon with.

The Congress is not yet decimated in Bengal, they still have some nuisance value! (laughs). The point is that we had made it clear from the very beginning that in the elections, our main target of attack is the BJP. That does not make the Congress our ally. We consider them the lesser evil.

But I can tell you that if you consider the economic manifesto of the two parties, it is the Congress economic manifesto that we disagree more with, though we say that the BJP is carrying forward the same economic policies that the Congress had advocated.

We have no brief for what the Congress is doing. It is for the Congress to decide whether it wants to be an accomplice to the BJP despite being the main opposition party in Parliament.

But we are not going to compromise. We are going to fight. We will seek institution of a joint select committee of Parliament members to go in to the issue.

We have already debated the bill endlessly. What purpose will another committee serve?

We are very clear that we are against the bill. It is for them to decide, to consider it. We are prepared to debate the bill endlessly, but our position is not going to change. We have made that also very clear.

Are you going to take help from pro-BJP groups?

I am not sure about that. The last time the bill was to be introduced, there was no splitting within the BJP or among the BJP and its affiliates. The Bharatiya Mazdoor Sangh (affiliated to the BJP) did make some noises but I don't think the BJP/NDA government is going to listen to the Bharatiya Mazdoor Sangh.

Are you planning any protest rallies and marches?

On the opening day of Parliament (November 29, 1999), we had a march to Parliament. All the insurance offices throughout India were closed on November 30 due to the one-day strike. We will think of a wider agitation. Of course, it will primarily be done by the trade unions, but we will mobilise the people, and in the entire financial and the public sector.

What next for privatisation? Do you believe that the government must pull out of non-strategic business? For instance, do you think the government should be running five-star hotels?

I don't think so. In fact, we had already made our position clear in 1996, before the United Front government came to power, and when the Ninth Plan draft was being discussed. We had said that further resource allocations should only go to the key sectors. Which means money should not be spent in running hotels or making soaps. I am not for going into such industries.

Second, there was a period when the public sector was the sick bay for the private companies. Any company that became sick or non-viable was taken over by the government. So all such areas, first we should stop getting into them. Next, those that are not viable, we should close them down. Those that are profitable can be kept. Ironically, the government is starting with the profit-making companies.

Please answer me specifically, should the government run businesses, whether profitable or not, such as hotels and soap manufacturing?

I have one condition. We can privatise such units on the condition that there is no loss of employment. And believe me, it is not easy. Most private parties that come in want a clean slate, often with most of the labour sacked. Otherwise, we have no problem in privatising such public sector units.

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