Shivaji Sarkar
The slew of reforms introduced by the Government has caused euphoria and at the same time raised a basic question whether it is a decision to shore up political fortunes or economics. The Opposition parties are slamming the decisions saying that these have been taken under the influence of large corporate and some western powers. At its end, the UPA-II maintains that these are only to give the economy a push and invite the much-needed investment.
The decisions to clear the 12th Plan target of 8.2 per cent growth, creation of infrastructure debt funds, Companies Bill amendment, and increase in powers of Competition Commission are being projected as the Government’s serious intent to give the right direction to the economy. The Cabinet’s decision on Thursday last, to raise stake of foreign direct investment (FDI) in insurance and pension sectors to 49 per cent against the Standing Committee of Finance’s advice of 26 per cent has raised a storm as it comes soon after increasing the limit of FDI in retail.
The Left Parties led by the CPM have rejected it. The principal opposition party, the BJP, against the usual expectation has not announced any unequivocal support and the Trinamool Congress is gearing up to table a no-confidence motion. Even Congress ally, the DMK is circumspect.
Insofar as the industry is concerned, it is not as euphoric as it should have been. FICCI Vice President Naina Lal Kidwai, who is also country head of HSBC Bank, responded with “It’s not euphoric yet. We have only turned to be hopeful”. Many others too from the industry are sceptical. The reason being that except for FDI in retail, each of these decisions needs Parliament’s nod.
The industry apprehends it would lead to pandemonium and whatever the UPA-II is proposing would remain on paper. In fact, it might create the base for acrimonious political exchanges in the run up to the State and 2014 parliamentary elections. In all, there are 200-odd insurance amendments and according to Ashvin Parekh of Ernst and Young many of these may be deadlocked in Parliament.
All this, raises a basic question whether the country is in need of investment or not. Most industry experts answer in the affirmative and that FDI is more than welcome. The money is required for infrastructure projects and is not easy to come by. The Government’s creation of infrastructure debt tools are cited as the basis of requirement for ports, airports, roads and other development projects.
However, as both the industry and Government feel happy about the developments, the country has yet to take lessons from the failure of the western economies and the unethical practices of the private insurance in the 1950s, which forced the Government to take over the insurance business at a time when it was not even prepared for it. Crores of people had lost their investments with the insurance firms, which gobbled up the poor investors’ money those days.
However, it is argued that with regulators this is no more possible. But only recently the IRDA has come out with a study to virtually state that it has limitations. How else can one explain the insurance companies in a short span of operation would appropriate over Rs 1 lakh crore funds of the common insurers?
Obviously, the Government has not taken note of the IRDA report. It has also not so far stated whether the minimum guarantee of return, as suggested by the Standing Committee, would be ensured or not. This is a basic necessary safeguard the Committee has considered not only for ensuring a return but also to protect the principal amount.
Further, there is another flip side. These businesses rake in huge profits through siphoning and book management. The repatriation of funds would be at a high level. The money that is being sought for infrastructure through these funds may possibly never come for the purpose except in some isolated cases. It is a high risk investment for India. This apart, the insurers are supposed to reinsure with public sector insurance companies. This would result in their losses being virtually hedged by the Indian insurance sector.
The supposed benefits are more for mass consumption. Every single individual would have to check the credentials of each of the companies and their schemes. The benefit to the country would be minimal, if at all. The argument that the companies need higher stakes is not based on firm realities. They are expected to raise more funds here. But as they would have 49 per cent stake officially, they would be able to repatriate funds at a higher level.
In such a scenario, expecting a higher growth during 12th Plan would not be easy. It is also necessary to understand that many private insurance companies have reduced their exposure as their businesses are not growing as per their expectations. The companies abroad are obviously watching these moves. Thus, in reality the extent of investment may not be as high as is being projected. The common man even otherwise has little to gain. The FDI is an expensive proposition and may well add to the cost and inflationary tendencies. What use then. INFA