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Unions, Left decry Cabinet nod to insurance bill, industry hails it

Neena Haridas in New Delhi

Finance Minister Yashwant Sinha’s promise to the industry was that the Insurance Regulatory Bill would be passed within three days of Parliament session. With the Cabinet giving a green signal to the bill yesterday, it is now ready to be tabled in the winter session of Parliament. But the question is: Will it be passed in this session with the speed at which Sinha had promised? And the answer is: Most likely not.

Sinha’s colleague and Union Power Minister P R Kumaramangalam said on Thursday at an Indo-US Economic Partnership seminar that the government would seek passage of the insurance bill to allow private sector participation in the sector during the budget session.

He said, “We would try to introduce the bill during the winter session itself, but as the session is short for a period of only two to two-and-a-half weeks, its passage is likely in the budget session.”

The bill which has been rechristened the Insurance Regulatory and Development Authority Bill, allows foreign equity stake in domestic private insurance companies to a maximum of 26 per cent of the total paid-up capital.

The bill seeks to provide statutory status to the insurance regulator and privatise the sector by amending the “exclusive privilege” granted to the General Insurance Corporation and the Life Insurance Corporation in the GIC Act, 1956 and the LIC Act, 1972 respectively.

The insurance business in India is pegged at $6.6 billion whereas industry leaders feel privatisation will open up as much as $26 billion.

However, the floor is divided over the bill. Industry leaders welcome the opening up of the sector, while the swadeshis feel it is wrong to bring in foreign investors into this sector.

CPM leader Harkishen Singh Surjit says, “We are totally against the bill. Why should we bring foreigners to all the sectors? In fact we don’t even want privatisation for Indians. Tell me, what is the problem with the current LIC and GIC and all? People say privatisation improves quality and services, I don’t think that is true. In fact, I feel the current services from our public sector insurance houses are good. Hence, there is no need for any privatisation.”

Many of the labour unions too including the Bharatiya Mazdoor Union, an offshoot of the RSS, is reportedly opposing the bill which would end the monopoly of the public sector units in the sector. In fact, some trade unions are planning a protest march against the bill.

However, industry leaders like CII president Rahul Bajaj and Assocham president KP Singh are all for privatisation. Rahul Bajaj says, “It is very important to have regulatory bills when the economy is being opened up. It is high time that the government gave up control and instead set up regulatory bodies. Only with competition can we bring in quality of services.”

Assocham president KP Singh welcomed the priority accorded to the bill for passage saying the “swift step” would give positive signals to foreign investors. Singh asked the government to not to get dissuaded by the proposed protest marches by trade unions, adding that the liberalisation of the insurance sector could mobilise huge funds essential for infrastructure development.

However, Singh is not in favour of a upper limit for foreign equity presently mooted at 26 per cent. “In a free market economy, to attract foreign funds full freedom to invest must be given to them with proper checks and balances.”

Singh said there was no gain saying the fact that at a time when the country was in dire need of long-term funds for investment in infrastructure, information technology and other sectors, it would be most unwise to keep idle huge funds which can be garnered after liberalisation of insurance sector.

Singh said a very large section of people does not have insurance cover in retirement or pensions. While millions go without health insurance cover, a large segment of rural incomes is not reflected in the growth of insurance premium as there is no marketing of products to this segment.

Meanwhile, US Ambassador to India Richard Celeste assured that the US was closely watching the pace at which economic reforms were being carried out in India. “The decision of opening up the insurance sector is a positive sign and many of the US investors are willing to bring in capital to India to invest in the sector,” Celeste added.

It is also learnt that a number of Indian private sector entrepreneurs such as the JK Group are waiting for the bill to happen in order to invest in this sector.

The government is also likely to introduce a supplementary bill carrying out amendments to the Insurance Act, 1938 -- the amendments are aimed at replacing the Controller of Insurance in the finance ministry with the IRDA as the regulator in the liberalised insurance sector. The amendments to the Insurance Act would also list out the new penalties and deposit mobilisation regulations for the insurance firms.

The IRDA Bill proposes a minimum paid-up capital for life and non-life insurance companies of Rs 1 billion, while for reinsurance companies, it is Rs 2 billion.

The bill states that the Indian promoter will have to mandatorily lower its stake in the private insurance firm from the initial 74 per cent to 26 per cent in a period of ten years.

It is proposed that in the private insurance joint venture, the Indian promoter will come to hold 74 per cent stake in the venture initially, leaving the foreign partner with 26 per cent. The bill also lays down the maximum solvency margin required to be maintained by the private insurance firms, and the regulations for insurance agents and brokers. There is no equity earmarked for foreign institutional investors, Non Resident Indians, and Overseas Corporate Bodies in the private insurance firms.

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