The Congress leadership is trying to push through the insurance amendment Bill, practically rejected by a House panel, but is unable to convince its own followers and allies.
THE recent neoliberal initiativessuch as raising diesel prices, capping the subsidy on LPG cylinders, allowing foreign direct investment (FDI) in multi-brand retail and the amendments to the insurance Billof the Manmohan Singh-led United Progressive Alliance (UPA) government may have got the official seal of approval from the Congress leadership, but the stirrings within the main partners in the ruling coalition underscore a growing unease at these moves.
To start with, many Members of Parliament of the Congress and several other parties in the UPA are of the view that these moves will certainly have a negative electoral impact. It is difficult to explain the rationale for these moves, and the partys grass-roots workers have repeatedly argued in favour of a calibrated approach towards these issues. In fact, the position taken by MPs of the Congress as well as other parties in the UPA in the Parliamentary Standing Committee [on Finance] on the Insurance Laws (Amendment) Bill, 2008, is a testimony to the concern that the lower- and middle-level [members] of the party have about these issues, a senior leader of the Congress with important responsibilities in government at the Centre told Frontline.
The standing committee that had unanimously rejected the proposal in the Bill to allow 49 per cent FDI in the insurance sector had 31 members, of whom 16 were from parties belonging to the UPA. More significantly, 12 of them were from the Congress.
The committee, chaired by former Finance Minister and Bharatiya Janata Party (BJP) leader Yashwant Sinha, had through several sittings done a clause-by-clause analysis of the Bill and had stated unequivocally that the proposal to raise FDI from 26 to 49 per cent was not acceptable. Instead, it had advised the government to consider the alternative route of formulating guidelines enabling companies to tap the domestic market for capital requirements.
There were other major proposals in the Bill to which the committee did not agree. One such was the proposal to include Lloyds of London, covered by the Lloyds Act, 1871 of the United Kingdom, under the definition of foreign company. The committee said that only those syndicates of Lloyds that had underwriting desks in India should be covered under the definition of foreign company.
It also sought to check the proposal to allow the operation of foreign insurance companies in special economic zones (SEZs) without regulatory control. The Bill bestowed on the government the discretion to make provisions of the Insurance Act applicable to SEZs in the sector. The committee took a firm stand against this proposal. It said: The intention of the government to permit unregistered foreign entities to operate in SEZs would not serve the purpose of developing a well-regulated insurance market in India and place domestic capital at the risk of being taken out of the country. Further, allowing free access to foreign insurers in SEZs would be discriminatory for Indian insurers.
The Bill proposed that companies or cooperative societies in the life or general insurance business must have a minimum equity capital of Rs.100 crore, while those in health insurance must have a minimum equity capital of Rs.50 crore. The committee recommended that the minimum paid-up capital in the health insurance sector, too, should be Rs.100 crore. It said this would ensure that companies were fully equipped with modern infrastructure and other facilities.
The committee also disagreed with the proposal in the Bill to remove the stipulations on the percentage of premium payable to agents as commission as also with the one to allow insurance companies to appoint their own agents instead of agents licensed by the Insurance Regulatory Development Authority (IRDA). It noted that the provisions of the Bill as proposed do not provide for a mechanism of appeal against the orders issued by the IRDA consequent to inspection and investigation of the affairs of an insurance intermediary. The committee suggested that the provision proposed be suitably modified to provide for a mechanism of appeal in such cases.
Dissent noteThe Bill had also proposed to do away with the requirement of Indian promoters having to reduce their stake to 26 per cent within 10 years. The committee suggested that this requirement be retained, and that divestment of shares may be done at any time before 10 years. This suggestion related to raising capital from the market and resulted in the recording of a note of dissent in the standing committee. Moinul Hassan, Rajya Sabha member of the Communist Party of India (Marxist), stated in the dissent note that there were no reasonable grounds for allowing the general insurance companies and the General Insurance Corporation (GIC) to raise capital from the market through disinvestment.
His note said: The committee, while agreeing with the amendment proposal enabling the general insurance companies and GIC to raise capital from the market to meet future capital requirements, expect that the aspect, reflecting the fact that the governments shareholding would not be allowed to come below 51 per cent at any point is suitably incorporated and specified in the section as agreed to. The General Insurance Corporation has a capital of Rs.430 crore, which is much above the requirement of Rs.200 crore as per the IRDA Act. The GIC has reserves and surplus of Rs.8,596 crore as on March 31, 2010. It also has assets of Rs.43,842 crore as on March 31, 2010. It has maintained a solvency margin of 3.71 per cent, much above the limit prescribed by the IRDA. The four companies [Oriental Insurance Company Ltd, New India Assurance Company Ltd, National Insurance Company Ltd and United India Insurance Company Ltd] are also adequately capitalised and together have reserves and surplus of Rs.14,544 crore and an asset of Rs.90,149 crore. These companies have also maintained solvency margins consistently higher than what is prescribed by IRDA. With sound financials, the GIC and four companies are capable of generating internal resources for expansion. Therefore, we do not agree with the proposal that these companies be allowed to raise capital from the market through disinvestment.
While the committee as a whole did not accept this dissent note, there was little doubt that the overall thrust of its report was against the neoliberal provisions in the proposed Bill. Talking to Frontline on the government initiative, committee chairperson Yashwant Sinha pointed out that the government was repeatedly showing disrespect to Parliament and its suggestions and deliberations. But unlike FDI in retail, this has to be passed by Parliament. With former partners of the UPA like the Trinamool Congress opposing the insurance sector reforms and given the unrest within existing UPA partners too on these issues, the combined opposition could well deal some heavy blows to the government, Sinha said.
The Left parties have consistently opposed these neoliberal moves, and CPI(M) leader Nilotpal Basu told Frontline that his party along with other Left parties would fight to defeat these policy measures when they were brought in Parliament. The UPA government is determined to sell out the interests of the country in all sectors. We will work to defeat all these Bills, including the Insurance Bill, in Parliament, Basu said.
The Left parties, however, are not sure whether the BJP will continue to uphold the position advanced by the party in the standing committee and other forums after the governments recent announcement. Many Left leaders pointed out that it was the BJP-led National Democratic Alliance (NDA) government that first proposed 49 per cent FDI in insurance in 2002. In fact, Sinha was the Finance Minister when the proposal was made. At that time, the Congress opposed it. According to many BJP leaders, it was in the interests of consensus that the BJP evolved the 26 per cent formula, but the Congress leadership, Manmohan Singh in particular, has blatantly undermined that consensus. Leaders like Prakash Javadekar have indicated that the partys objective is to ensure that certain caveats and conditions are brought in to safeguard the interests of the people.
On its part, the Congress leadership seems convinced that it can take the principal opposition along on the insurance Bill despite its current protestations. Party spokesperson Rashid Alvi indicated as much while interacting with the media. But despite that confidence, the sense of unrest noted by the senior leader does continue to grow in the party and its associates in the UPA, particularly among the Lok Sabha members, who realise that they will have to go back to the people for votes once again in the not-too-distant future.
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