'The opening of the insurance sector will send a powerful
signal which will attract all kinds of investments'
J Rajagopal
First up, I am not an
economist, but I do look at the Budget
from the point of view of a professional
advisor who consults with
international and domestic companies.
I think it is a growth-driven Budget,
the impact of which will be felt not in
the short term, but in the medium to
long term. The primary reason for this
is that the main engine for growth is
the infrastructure sector which, as you
know, has a long gestation period.
Before we open up any sector
to private and foreign investment, we
have to ensure that there is a proper
regulatory framework to ensure the
sound functioning of that industry.
While I agree with you that the United
States has some severe problems in its economic framework, one
of our advantages is that we could
learn from the experiences of other
countries and ensure that our policies
reflect the best practices from the
international scene.
In my opinion, the opening
up of the insurance sector has been
long delayed, and it is about time it
found its place on the top of the reform
agenda. The insurance sector
mobilises capital for infrastructure
development by garnering savings
from the people.
In our country, the
Life Insurance Corporation has
penetrated only 20 per cent of the potential
market. The entry of new private andforeign insurance companies will
expand this market and tap into the
savings that is out there.
Successive governments
are trying their best to increase inflow
of tax revenue. The last government
introduced VDIS, and this government
is betting that continued lower tax
rates and simplifications of forms and
procedures will improve compliance.
Given the long history of tax evasion
in this country, I think it will be
sometime before we see more tax
generation.
In the foreign investment sector, first and foremost, they must
have a clear and consistent strategy to
attract FDI. This has to be bold and
imaginative, and sufficiently attractive
to get the attention of the
international business community.
Secondly, successful projects should be
given wide publicity. Thirdly, we must
remember that as much as two thirds of
China's FDI comes from overseas
Chinese based in South East Asia.
Similarly, we should make a special
effort to attract NRI investments.
Based on my interaction with
our clients, I have not sensed a
negative attitude towards investing in
India post nuclear. As of now, it seems
business as usual.
In my opinion, the opening of the
insurance sector will send a powerful
signal which will attract all kinds of
investments, including those from FIIs.
I think this Budget has a slight
swadeshi flavour, as can be seen in the
imposition of the 8 per cent flat import duty
on all imports. However, the FM has
tried to strike a balance by the
opening of the insurance sector and
providing for procedural incentives for
foreign companies.
As to how long it will be before the insurance sector takes off, in my opinion it will take at least two
to three years. I doubt very much if
purely Indian-owned companies will
have sufficient knowledge and
expertise to get into this sector. This
means that they will have to do joint
ventures with foreign companies, and
then these JVs will go about getting a
license and setting up an
infrastructure. All this will take time.
We have been
talking about PSU
disinvestment for many years now. I
hope the present government will
finally take some action. You will note
that the FM has talked about closing
down unviable PSU units -- something
that no other FM has ever stated.
As to the proposal regarding Indian Airlines, one has only to look at the
experience of British Airways to take
heart. BA was a government-owned
company, and the diversement of
government equity and sound
management has today made it one of the
most efficient and profitable airlines in
the world.
The stock market seems to
suffer from a lack of confidence both in
the economy and in the government.
Hopefully, this government will last its
full term and the Budget will send the
right signals.
As far as the real estate market is concerned,
given the proposed abolition of the
Urban Land Ceiling Act and the
incentives given to the housing
industry in this Budget, it is likely that
the real estate market may fall even
further in some cities.
J Rajagopal, managing director, Coopers & Lybrand, spoke on the Rediff Budget Chat.
Budget '98
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