It is ironical that the Congress, which had opened up the financial sector to overseas investors, is now being obstructionist on the question of raising the limit of foreign direct investment (FDI) in insurance to 49% and has succeeded in getting it shelved for the time being. The all-party meeting called to iron out the differences proved a failure.
The matter is even more perplexing when seen in the context that it is the Congress-led UPA government that had proposed raising the ceiling after it came to power in 2004. The Congress now wants the Bill to be sent to the select committee, which means a delay of months, if not years. Instead of asking for the Bill to be sent to the select committee, a more sensible option might have been to allow the Bill to be tabled in Parliament and then debated. After the Bill emerges from the select committee, the Foreign Investment Promotion Board will scrutinise each FDI proposal, resulting in a loss of more time.
The Congress would do well to remember that this stand, while lacking in any ideological content, will end up cementing the ‘anti-reform’ image it has acquired over the past five years.
The benefits of FDI in insurance, both life and non-life, are too obvious to be stressed. First, a very small proportion of the Indian population, less than 5%, have taken direct insurance policies. Second, back-of-the-envelope calculations have shown that FDI worth Rs. 22,000 crore will come into the country if the sector is opened up further. And if the misgivings of the Congress are that eventually insurance firms will be progressively foreign-owned, what is the harm in that? If foreign banks can operate in India, why can’t the same be replicated in the insurance sector? Many private insurers in India are unable to expand because of the lack of enough capital and this lacuna can be met through more FDI coming in. And with Life Insurance Corporation and four corporations — National Insurance, New India Assurance, United India Insurance and Oriental Insurance — being there, the fear that the State sector will lose insurance space is unfounded.
The reach of private insurance in India is highly limited. Thus, increasing the FDI ceiling to 49% will not bring about momentous changes in short order. But it will do a lot of damage as regards perceptions of India as a business-friendly destination and its willingness to open up the economy. There are sectors that are sensitive from the security point of view and hence deserve to be treated with caution. The financial sector is not one of those. Hence the Congress should fall in line with the government and help see the Bill through.