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Minister rules out divestment of LIC, GIC

Minister of State for Finance Satpal Maharaj has ruled out privatisation of the Indian insurance sector.

Addressing a seminar in New Delhi on Monday on 'Privatisation of Indian Insurance Market -- Future and Challenges', Maharaj said the word privatisation essentially means turning of public property into a private organisation. In the Indian context, it means disinvestment by government in the public sector units.

"This is not what the government has in mind as far as the insurance sector is concerned. There is no proposal at all to privatise the public sector insurance companies,'' Maharaj said.

Giving figures on the growth on the insurance sector, the minister declared that life insurance funds have grown from Rs 4.10 billion in 1956 to Rs 877.59 billion in 1996-97. The premium income of the Life Insurance Corporation was Rs 900 million in 1956 and today it stood at Rs 163.51 billion.

LIC's investments have been in government securities and in socially-oriented sectors which, in turn contributed in a substantial manner to the economic growth of the country.

Maharaj asserted the government has widened the scope of LIC's investments in socially-oriented sectors by including ports, roads, highways, railways and airports both in the public and private sectors.

LIC has made a significant presence in the rural areas and nearly 45 per cent of its business is from rural India.

The General Insurance Corporation of India is not lagging behind either, he stated. GIC has four subsidiaries, all of which have done a commendable job since their formation.

Satpal Maharaj said there is a need to improve customer satisfaction and increase the reach of the products. A large segment of the population needs products which suit complex requirements and there exists a tremendous scope for further development in the insurance business, both in life and general categories, he added.

Pointing out that India's insurance premium is only 1.84 per cent of the GDP, he said this is quite low compared to many Asian countries. The minister said there is a vast scope for further penetration of the life insurance schemes and development of pension, annuity and unit-linked insurance policies.

He said the world financial markets have become highly dynamic and increasingly integrated due to the development in communications, information technology, transportation and also because of the massive increase in cross-border movement of funds due to deregulation and progressive dismantling of exchange control regimes. India cannot remain isolated in the light of changes sweeping many parts of the world.

The Malhotra Committee had suggested the introduction of competition to derive better customer services and help improve the variety and price of products in the insurance sector.

The government has permitted LIC to promote joint venture in pension business and also to allow Unite Trust of India to have a full-fledged pension fund.

In view of huge requirements for the infrastructure sector from the domestic resources, Satpal Maharaj said there is need for provident, pension and insurance funds so that the corporate sector has access to these funds for infrastructural development.

Another need for developing a pension fund is from the aspirations of the aged people to live a comfortable life in their old age. In fact, the pension funds have registered remarkable growth in developed countries but have not developed in India.

Satpal Maharaj said at present, conventional reimbursement-type health insurance schemes are available in India which may not not be cost effective and popular in rural areas where consumers' have limited ability to pay. Instead, insurance plans which integrated financing and delivery of care should be encouraged like in other countries, he added.

The minister said the next century will see a tremendous rise and progress of the insurance industry. As a powerful economy, India would provide enormous opportunities for growth in various directions.

He stated that the insurance sector will have to be organised and managed with a long-term vision. The opportunities will be abundant and will need imagination, pragmatism, cooperation of all concerned to make the emerging insurance market truly strong and vibrant, he concluded.

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UNI