DEBATE @ THE HINDU

Foreign players were permitted to enter the insurance sector quite a few years ago, and they have done so. The current debate is not about their continuance or restoration of public sector monopoly in the insurance business. It is about their enhanced participation and its potential for creating substantial economic benefit.

It is true that the industry needs significant capital in the future. Whereas the LIC has existed for more than 55 years, the private life insurance industry (23 companies) has generally developed in three waves over the past decade. While a few in the first wave may not require significant capital, half of the companies remain in the early development stages and continue to require significant capital.

Unlike other businesses, life insurance companies need to build up huge reserves to pay future claims of their policyholders and to pay for significant upfront costs prior to profits emerging from long-term sales. Unfortunately, it is also true that some domestic promoters would like to sell all or a part of their shares and/or stop funding new capital given their shorter-term investment time horizon.

It is also not the case that all foreign companies are good. Nor are the foreign promoters of Indian life insurance companies speculators on the verge of bankruptcy. They are large, multi-national life insurance companies who have been in the business for decades.

Economic and industry experts have all lined up in support of the Insurance Bill and the increase in foreign investment to 49 per cent, including India’s own independent insurance regulatory body, IRDA.

The amended Insurance Bill, due to be tabled before Parliament in the Budget Session, is not something to be feared. As I stated in my article, I continue to recommend that the amended Insurance Bill should keep matters simple by lifting the total foreign investment limit to 49 per cent and ensure its passage. Shareholders should be left to determine the best way to address a company’s needs — whether through FDI or FII.

(Vijay Kumar Shunglu is former Comptroller and Auditor General of India and has headed several key government committees on various issues.)

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