Political insurance

Thursday’s ‘big-bang’ reform announcement by the Congress-led ruling alliance is significant not so much for its rationale as the timing. The insurance sector — particularly the ventures set up after the industry was opened up for private competition in 2000 — requires an estimated Rs 60,000 crore of fresh capital in the coming five years. The question, then, is one how this capital infusion is to be made. Currently, foreign equity in insurance is limited to 26 per cent and it cannot also be enhanced without the domestic promoter’s acquiescence. But if the enterprise needs additional capital and the domestic promoter for whatever reason is unable to come up with the requisite cash, for the Government to stick on to the 26 per cent ceiling in the face of compelling business logic is, to say the least, churlish. Just as tele-density in India wouldn’t have reached the present levels had Bharat Sanchar Nigam Ltd remained the sole operator, the country needs well-capitalised private insurance and pension players, especially when social security coverage eludes a majority of its population. The growth of these two sectors is also important from the standpoint of channelising long-term savings for financing infrastructure development.

But such compelling economic logic may not politically saleable. In this case, they would require formal legislative amendments to be pushed through Parliament, where the Congress does not have the numbers by itself. Moreover, the Cabinet decision to permit 49 per cent foreign direct investment (FDI) in insurance, and provide for the same in pension as well, goes against the recommendation of the Parliamentary Standing Committee on Finance to limit these to 26 per cent. To go beyond what the panel – headed by the Bharatiya Janata Party (BJP) leader and former Finance Minister, Yashwant Sinha — had sought, indicates unusual boldness on the Government’s part. And considering that the next winter session is still a month-and-a-half away, the latest announcements may even seem an act of bravado. In any case, unlike FDI in multi-brand retail, they will have no executive meaning without Parliamentary approval.

What this suggests is one of two things. The first is the Government being very sure of managing the numbers in Parliament. Indeed, no single party since the time of Narasimha Rao’s Government in 1991-96 has got as many seats in the Lok Sabha as the 203 members with the Congress today. Although short of the 272 half-way mark, with alliance partners and exploiting divisions within the Opposition, it may still be enough to get the necessary legislations passed in Parliament. But the second is the possibility of a deal with the main Opposition BJP. This is an option that the Government should actively explore by appealing to the latter’s natural reformist instincts, as opposed to the Congress’ inherently statist tendencies. With the old ‘Young Turk’ generation within the Congress lying low now, Manmohan Singh and P. Chidambaram may do well to reach out to the BJP.