The global economic meltdown, it seems, could not provide any lesson to the present ruling dispensation of our country. They have been dogmatically pursuing the same neo-liberal policies which have failed miserably throughout the globe. Insurance sector reform is a key agenda of this policy framework. In 1999 the then BJP led NDA government initiated the reform process in the insurance with the promulgation of the IRDA Act opening up of the sector to the private sector, both indigenous and foreign. The present UPA regime has been taking steps to further widen and deepen the reform process. It brought two bills viz, LIC (Amendment) Bill and Insurance Laws (Amendment) bill in the Lok Sabha and Rajya Sabha respectively in 2008. In the wake of strong opposition to these bills both inside and outside Parliament the Government had to send both the Bills to the Standing Committee of the Parliament on Finance. With the dissolution of the previous 14th Lok-Sabha the LIC (Amendment) Bill lapsed and the UPA government placed it anew in the 15th Lok-Sabha. Now the Government is trying desperately to pass both the Bills in Parliament.
These two Bills lay down the roadmap towards further liberalisation of the insurance sector and disinvestment as well as eventual privatization of the public sector insurance in our country. The LIC (Amendment) Bill, 2009 seeks to increase the equity capital of LICI from Rs.5 crore to Rs. 100 crore. Apparently it may appear to be a move to strengthen LICI. But the hidden agenda of the Bill is to pave the way for disinvestment of the shares of LICI. Everybody knows that disinvestment is the first step towards privatization. LICI today is not at all in the need of any additional capital. As on 31st March, 2009 the total asset of LICI stood at about nine lakh crore rupees. Against such a huge asset base the total liability of LICI stood at only Rs.7,75,000 crore. It means, after meeting the entire liability LICI would have a surplus asset base of more than one lakh crore rupees. Where then lies the need of injecting an additional capital of meagre Rs. 95 crore.
This sinister move has only one aim and that is disinvestment of LICI. An equity capital of Rs.5 crore is not sufficient for disinvestment. Hence it is to be raised to Rs. 100 crore. Fifteen years ago, in the year 1994 a committee led by Dr. R N Malhotra made the same recommendation and asked for disinvesting fifty per cent shares of LICI. It was a prescription made at the behest of private corporate houses and foreign MNCs, for privatization of LICI. The then Congress government at the Centre of which the present Prime Minister was the Finance Minister though accepted the recommendation, could not implement it due a strong countrywide public opinion against it. Now the present UPA regime has been attempting to implement that retrograde recommendation under the cover of this Bill.
Some of the provisions of the bill which are brazenly against the interest of the policyholders, bring out clearly the real design of the Government. One of the provisions of the Bill seeks to withdraw the universal sovereign guarantee that the policies of LICI currently enjoy. The Bill says that the policies of LICI to be provided with sovereign guarantee will be determined by the Government of India from time to time. The LICI since its inception never invoked the sovereign guarantee. On the contrary it paid to the government a sum of Rs 7926.40 crore upto 31st March, 2009 as dividend only against an investment of Rs. 5 crore made by the Government, in 1956 when LICI started its journey. Neither the LICI would be required to invoke the sovereign guarantee in future as its asset base far exceeds its liability. Why then the government seeks to withdraw the sovereign guarantee ? It is the private insurance companies which has been vociferously demanding the withdrawal. Bowing to their demands and in their interest the Government has made this provision in the Bill.
Another provision of the Bill reduces the share of the policyholders in the LIC’s valuation surplus from the present 95 per cent to 90 per cent while increases the share of the Government of India from 5 per cent to 10 per cent. This will force the LICI to reduce the bonus amount to the policyholders. This move is also aimed at benefiting the private insurers at the expense of LICI. At present LICI is paying the highest rate of bonus to its policyholders. No private company can compete with LICI on this count. Almost all the private companies are incurring losses and the quantum of loss has been increasing progressively. As per figures furnished by IRDA the loss of private insurance companies amounted to Rs. 1950.12 crore in 2006-07. In 2007- 08 the loss increased to Rs.4324.52 crore, a rise of 221.75 per cent. In 2008-09 the loss increased further. These companies therefore have no capability to declare bonus to the policyholders from the surplus arrived at after valuation of their business performance, as LICI does. They declare bonus from the Shareholders’ Fund. Hence these private companies want LICI’s capability to pay bonus at higher rate to be reduced. And the UPA Government at the Centre is obliging them at the cost of the policyholders of LICI.
In fact, the Government has initiated these moves at a time when the public sector insurance has been registering spectacular advance vis-a-vis the dismal performance of the private insurers. In the first six months of the current financial year (2009-10) LICI registered a growth rate of 35 per cent in terms of premium income against a negative growth rate 15 per cent registered by private companies. During this period the growth rate of the Life Insurance industry in India comprising both public and private sector, was only 13 per cent. Obviously LICI today is the engine of the growth of life insurance industry as a whole. Similar is the story in the general insurance sector also. Through the Insurance Laws (Amendment) Bill the Government seeks to increase the ceiling on Foreign Direct Investment (FDI) in the insurance sector from the present 26 per cent to 49 per cent. This Bill also provides for disinvestment of shares of the public sector general insurance companies.
This move to further liberalise and open up the insurance sector to the foreign companies has been initiated at a time when throughout the world, particularly in developed countries of Europe, USA and Japan the foreign insurance companies in the private sector have either gone bankrupt or are in very severe crisis. These companies have ruined their own clients. Many of these foreign insurance companies have to be rescued by their respective government through nationalisation or takeover of majority of their shares. Eighty five per cent of the shares of AIG, the largest private insurance company in the whole world had to be taken over by the US Government. Our government is eager to roll out red caret to these companies, which to fulfil their insatiable greed for super profit have ruined the hard earned savings of their policyholders. These crisis-ridden foreign companies are now desperately trying to gain greater access to the emerging markets of countries like India. But this move of the Government is extremely detrimental to our national interest. The argument of the Government that further liberalisation of the insurance sector would result in greater inflow of foreign capital that can be utilised for the development of our country, has no locus standi. Such argument is totally irrelevant in the present context of global economic crisis. Indian experience of the last one decade of opening up of the insurance sector reveals that foreign partners of the private insurance companies in India have not brought a single penny from their policyholders’ fund abroad. Their contribution to the Indian economy is nothing. Too much reliance on foreign capital only will not serve cause of national development.
The present UPA Government it appears, refuses to learn any lesson from the recent global economic meltdown. The financial sector in India escaped the disastrous impact of this crisis. When the insurance companies, banks and other financial intuitions in the USA, Europe and Japan had been collapsing, the insurance companies and banks in India remained unscathed. Our financial sector held its ground firmly. Consequently, the savings of our people remained safe and secure unlike the developed countries of the West. The main reason behind this is the predominance of the public sector institutions in our financial sector.