NEWS & MARKETS
COMMENTARY
INTERVIEWS
CHAT
ARCHIVES

'Will financial infrastructure be with Indians or with MNCs?'

Rediff On The NeT has made arrangements to carry the transcript of the popular television programme, Crossfire. We present the fourth of the series, which debates whether foreign insurance companies should be allowed into India. The moderator is the well-known economist, Sanjaya Baru.

Sanjaya Baru: Good evening and welcome to Crossfire, a programme of debate and discussion. The subject: "Should the insurance sector be opened up to foreign companies?" What do they have to offer the Indian customer? Will Indian companies feel threatened by the entry of foreign companies?

To discuss these issues we have Jagdish Shettigar, a member of the Bharatiya Janata Party national executive, and Duncan West, CEO of the Royal & Sun Alliance, a multinational company.

Mr Shettigar, your party refused to vote for Chidambaram's bill in favour of opening up the insurance sector. Do you still stick by that in this Parliament?

Jagdish Shettigar: First of all, let me make it very clear that the reason we opposed the regulatory bill is not because we were opposed to insurance reforms as such. At that time, as a part of our strategy to make the government declare its stand on the insurance policy, we stopped the regulatory authority bill. Otherwise, we are not opposed to it.

SB: Yes, but your specific objection is to foreign companies, isn't it?

JS: Yes. We agree that the monopoly of the government-owned LIC has to be broken, and that there is a need to allow the private sector entry. But we are of the opinion that the foreign sector should not be allowed because insurance cannot be compared with the manufacturing activity. This is part of financial infrastructure, the control of which should not got into the hands of foreign powers. I agree that there is a resource crunch in the economy, in view of the requirements of infrastructure development. But then in what way do foreign insurance firms supplement our effort of resource mobilisation?

SB: Mr West, what is that you have to offer India?

Duncan West: There are a number of issues here. First of all, there is a need to mobilise domestic resources. The Rakesh Mohan Report on Infrastructure says that 85 per cent of funds for infrastructure development have to come from domestic industry. The type and the level of penetration of insurance in India is incredibly low. On the non-life insurance segment, India ranks 74^th out of 77 countries in the world! On the life insurance segment, the track record is much better but given the rate of savings, there is much more room for growth. If you were to let those elements grow, you would see an additional revenue of around $10 billion a year entering the market to enhance infrastructure. Insurance and our expertise will assist in mobilisation of these funds.

SB: What is it you can bring onto the table? What is this expertise that Indian companies lack?

DW: Today clearly the penetration is very low. Now there are number of reasons for that. Customer service and product development here have been below world standards. We can come in there. There is a lot of debate as to what is technology in insurance? But there is expertise in certain systems of pricing and customer service which we offer to customers!

JS: All these things such as customer service can be improved from within when there is competition with private sector. As far as technology is concerned, our private sector can always purchase it as and when required. We can even bring in experts. As far as technology in mobilising resources and increasing penetration level is concerned, it has to occur in the rural areas. This requires the advantage of language and of cultural understanding. I don't think foreign insurance investors have got this advantage!

DW: Certainly, there are many things we would be unaware. That is why we would only look at a joint venture with an Indian company.

JS: Even in the case of LIC, it is not a normal western administrative machinery which they use for this roping in customers. They use the indigenous LIC GENT System. You have to depend on this sort of localisation which means you are depending on our technology!

DW: Don't ask me! Ask the Tatas, the HDFCs, the ICICIs, why have they entered into MoUs with foreign companies in the insurance sector? And they would say, and I don't want to put words in their mouth, that there is expertise that is unavailable in India which they require.

SB: Mr Shettigar, is one of the BJP's concern that foreign companies are not going to focus on the rural areas but on the premium urban market and that they will push up the cost of insurance?

JS: My basic concern is that once you have control over the financial infrastructure, is it going to remain within India or go into the hands of the MNCs?

DW: We would invest half of the money raised in any fund in a joint venture in India raised. I would be quite happy with any legislation which states that you could only invest those funds in India. We would invest them on a long-term basis.

JS: Investing in India is okay, but will it benefit the Indian companies or the MNCs based in India? Because this is contrary to the very argument that there is a resource crunch and so you should encourage foreign direct investment! Why call "experts" from outside to mobilise domestic funds and let them reap profits for MNCs?

SB: Mr West, are foreign firms like yours actually going to bring in funds or are you talking of managerial expertise?

DW: Both. But we are not talking of vast amounts of FDI entering the market.

SB: What we are asking is, if you are only coming in with funds, then why can't Indian companies hire managerial expertise? Why can't they hire people like you?

DW: You should ask this question to the like of ICICI, Tatas, and HDFC. They are of the view that this sort of proprietary information is not available.

SB: Mr West, let me pick up another issue -- health insurance. The experience of health insurance especially in the USA has been to increase the cost of medical care. Do you think that is what will happen if we open up the sector here?

DW: No, I don't think so. Health care costs are increasing worldwide whatever system is adopted, be it state or private funded.

JS: It is the same case with crop insurance or any other kind of insurance. In fact, when Prime Minister Vajpayee said that he was willing to allow them in, I had told him that none of them would be willing to come forward. And that proved true. Foreign investors, embassies, all these people used to raise only the question of insurance. My question to them is: if you are so concerned about our resource problems and backward technology, then it is okay. But why are you so concerned about mobilisation of our savings? That suggests there is something different in your motive.

DW: There are two key issues. One is the economic issue for mobilisation of funds and the other is to provide insurance cover so that every individual is protected. Also, we are quite happy to enter both health and crop insurance.

SB: Let us listen to what Mr N Rangachary, chairman, Insurance Regulatory Authority of India, has to say on this subject:

N Rangachary, chairman, IRA: The experience in India and otherwise, when you allow foreign companies to enter, is that the existing native companies continue to predominate. In none of the countries where privatisation of industry has occurred or where new players have been allowed to enter the market, has the foreign investor taken away more than 10 per cent of the market share!

SB: Mr Shettigar, what is your response to Mr Rangachary?

JS: Well, we don't have any experience as of now. This is 10 per cent of the market share I think is a overall figure. But I think all this confusion can be worked out -- perhaps foreign investors can be given a minority share.

SB: But Mr Shettigar, they are saying only want to enter in joint ventures where the Indian partner has a majority stake!

JS: We are open to consideration. The party hasn't taken any decision yet.

SB: Ok, lets now listen to what Mr R N Tripathi, managing director, LIC, has to say:

R N Tripathi, MD, LIC: Life insurance is a highly confidence-based industry. Once lack of confidence affects the industry, like what is happening in the capital markets now, the retail investor will not come back to the market because his confidence is shaken. It is in this context that I think the sector should be opened in a phased way. Like the former finance minister had announced, it should start with the pension sector, health insurance, and thus be gradually opened up, etc.

SB: Mr West, is it reassuring to hear that from the managing director of LIC, which enjoys a sheer monopoly?

DW: Well, yes and no. Certainly insurance is a confidence-based industry and if we were to enjoy the confidence of the Indian public then it would be good. But I don't see any merit in a phased opening, product by product.

JS: I agree, they need not go about it product by product. Once the mobilisation of the savings is taken care of then it is okay.

SB: Mr Shettigar, the fact that you don't mind foreign joint ventures, will this be a part of the government's Budget?

JS: I cannot say anything on behalf of the government. All I can say is that this issue is open to discussion.

SB: Mr West, are foreign insurance companies interested in developing markets because returns to investment in your own markets are going down?

DW: We are interested because the long-term returns are reasonably static and we get good returns from the already developed markets.

SB: I am afraid that we running out of time. But clearly the fact that Mr Shettigar is open to having joint ventures with foreign companies is news. Thanks you for being with Crossfire.

EARLIER CROSSFIRE TRANSCRIPTS:
Takeovers, mergers, acquisitions: 'Companies still treated as family property'
Is the tariff structure hurting Indian industry?
The BJP's national agenda for governance

Kind Courtesy: IN TV

Specials