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'Reform is a tidal wave which no man or political party can stop'

In the third and concluding part of our series which looks at the future of economic reforms under the United Front, George Otto, chief representative, Allianz AG, India Liaison Office, spoke to Syed Firdaus Ashraf about the progress of reforms and what steps need to be taken. Allianz is one of the world' leading insurance company and Europe's leader in premium income. In 1994, the group investment portfolio had a book value of Rs 4600 billion. Excerpts from the conversation with Otto, who is a native of South Africa:

What message does the Insurance Regulatory Authority bill's withdrawal send to foreign investors?

Unfortunately, the withdrawal puts a question mark over the whole process of liberalisation and deregulation, though we do not yet know what its overall implication will be. My personal opinion is that it is a temporary setback, but we will have to wait and see how temporary the entire process will be.

Were you disappointed by the decision?

Of course! Everyone was disappointed. Everyone was well prepared for the process to finally go ahead, and naturally, it was very disappointing.

Do you think one reason why we are not able to proceed with reforms is because we have a 14-party coalition government?

In any circumstance, working with large coalitions leads to difficulty. But the reality is that nobody is against the reforms.

Are you optimistic that the insurance bill will be passed before the next Budget?

Prime Minister I K Gujral has indicated that he would like to bring the insurance bill back to Parliament. Moreover, before bringing it to Parliament, he is consulting others better than earlier. But we don’t know how long the consultation process will take -- may be a week, maybe a year.

If you were asked to grade the reforms in India since 1991, what per cent marks will you give the country?

I would not like to give any percentage as such. I think the country has come a long way. Liberalisation and deregulation do not happen overnight, they are managed processes. You have to reform in a phased manner. India, however, needs to speed up the reform process. There is a also the need to take a proper look at infrastructure. Multinational companies investing in infrastructure will want insurance cover and support from their overseas companies. That is why the withdrawal of the insurance bill was not a good sign.

In your opinion, what has India achieved since 1991?

Many things have been achieved. I have been in this country for the last two years, and have witnessed consumers wanting a change. There is commitment from everybody for actually moving things forward. However, with 14 parties in power, the speed of change has slowed down. I honestly don’t think the process of change has halted.

What will be the future of the reforms? Will it continue at a good pace or will it slow down?

I think the reforms have temporarily slowed down, but it will go ahead. The process is a tidal wave which has started and no man or political party can stop it. It has set in motion the process of change. And I don’t think anybody wants to turn back or will be able to turn back.

Many projects have been approved, but actual inflow is very little. What needs to be done?

I think the process needs to be streamlined, which has not been done so far. Liberalisation in other countries is planned. There is a pre-determined strategy. They take one sector, make changes, and only then move to another sector. People abroad and in India want to see changes as soon as possible. Unfortunately, that is not always possible. I feel India must approach the process of change in a structural and logical way. I am hopeful that will happen soon.

Did the Congress party's withdrawal of support to former prime minister H D Deve Gowda’s government affect foreign investors?

The withdrawal obviously worried foreign investors. Before taking these decisions, the politicians should be very careful. Because international financial institutions continuously scan investment opportunities around the globe, especially in Southeast Asia. Financial institutions prefer huge markets, but there also comes a time when investors start losing patience. I think India must always try to avoid that kind of situation.

India has not yet cut down its subsidies nor made any progress in the exit policy. Do you think we have failed on these fronts?

The issue of subsidies is very sensitive. There is a lot of negative reaction to that. For example, if you look at the difference in the price of petrol and diesel, it just does not make sense. You can always have some sort of subsidies for farmers and taxi drivers, but not for everyone. I feel the answer is to gradually phase out the subsidies rather than cut them in one go. If the price of diesel is raised quarterly there will be no problem. But if you try to double it, there will probably be a revolution against it.

It is the same for the labour policy. You have a very strong trade union movement. The private sector must come in and start changing the unions around. And these things will occur only if you have a strong government.

The finance minister has ideas which look and sound very good, but exist only on paper.

Yes, and that is very unfortunate. This also is a consequence of not having a strong government. If you see countries around the world, the same thing has happened. Italy went around with a weak coalition government. Nothing moved forward in that country.

I always refer to Newton’s Law of Motion which says that things will move forward along a straight line unless an external force acts on it. Exactly the same principle happens in life. Things do not change, unless there are forced to change it. Similarly for liberalisation, change has to come internally or externally, sooner or later. But it is not going to happen on its own. Somebody has to actually stand and do it.

How different is the Chinese method compared in India vis-a-vis the insurance sector?

In China, licences are not issued countrywide, only province-wise. Which means you have to apply for a licence in each specific province. There are also certain prerequisites. Before you start operating in the country, you have to establish your presence there for a certain number of years. It is a fairly structured and lengthy process. Therefore, there are only two foreign insurance companies operating in China. Allianz will be the third. We plan to start by early January.

Do you think India too needs state-wise policies and the Centre not interfering with the investment process?

I think India already has tremendous administrative and control burdens. If insurance companies have to be registered in every state, it will only compound the problem. I think India needs to encourage and ensure investment all over the country, to avoid companies choosing the affluent states and neglecting the other states, especially if you want insurance in the rural communities and poorer states. For this, you need a central policy.

What is the market size in India for foreign insurance companies?

Obviously, we cannot target the 950 million people of India. You have to target a particular number of consumers in the market. We are concentrating on 200 million to 300 million people. We will not be able to achieve penetration in the rural areas. We will have to develop our products to make them acceptable to the Indian markets. Is the pricing right? Are the results right? To develop such products, you will have to launch them on limited basis. And only after seeing their success, move on to other products.

The Indian middle class, which is considered very attractive, has been found to be not very foreign-brand conscious. The prices of foreign goods really matters to them. If Indian goods are cheap and foreign goods expensive, people don’t go for it. And moreover, in the case of insurance, they will not want to risk their investment.

Why do you think people will give up the Life Insurance Corporation and General Insurance Company for foreign insurance companies?

Firstly, let me make a correction about brand consciousness. Recently, I read an article in a newspaper about Sony Television. You know who is the biggest rival of Sony in India? It is the imported Sony television. More Sony television sets are imported into India than sold by the Sony company here. Imported brands appeal to a certain class of consumers in the country. It will be the same for insurance. And if we go for cheap insurance products, that also appeals to a certain class of consumers, which is ready to pay a reasonable price for that product. So there is a demand from the lower as well as the upper end of the market for us.

Regarding GIC and LIC, we will have to compete with them. In Europe and other overseas markets, it is very difficult to differentiate between the various products. In the end, it comes down to pricing. The companies differentiate themselves by pricing and their quality of service. I think that is the advantage the consumer will have in India. He will be given a choice which he does not have at the moment.

The middle class in India has not turned out to be as huge a market as was predicted earlier. What is the reason?

This is the case with luxury products. Multinationals always overrate the purchasing power of the middle class. I don’t think insurance is a luxury product, it is essential. Moreover, the Indian consumer keenly determines the product he wants to buy. Unlike other countries, he is a very sophisticated buyer. He will buy a product only after he feels the price of the product is worthwhile.

What has been your experience working in this country for two years?

It has been wonderful. It is not easy for any foreigner to come and settle down in India, as the cultural differences are quite severe. Here, the people are wonderful. The country grows on you. It has great potential. In the last two years I feel the consumer has started a consumer revolution in this country.

EARLIER INTERVIEWS:
We never finish a project that we start, says NSE Managing Director R H Patil
The Kesri factor was a speedbreaker in the reforms process, says Tata's chief economist S S Bhandare