Title: Further discussion on the Insurance Regulatory and Development Authority Bill, 1999. Moved by Shri Yashwant Sinha on the 30th November, 1999. (Motion for consideration). (Concluded.)
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THE MINISTER OF FINANCE (SHRI YASHWANT SINHA): Mr. Speaker, Sir, I rise to reply to the discussion which was started in this House day before yesterday on the Insurance Regulatory and Development Authority Bill, 1999. I should begin by saying that I am extremely grateful to the hon. Members of this House who participated in this debate and made valuable suggestions. Some of the speeches that I have heard in this House in the course of this debate are some of the best speeches that have been made in this House over a long time.
I may not agree with the substance and content of the speech, for instance, that Shri Rupchand Pal has made. But I must admit that he did an excellent job – made a brilliant speech – with all the facts and figures at his command.
I am also grateful to the hon. Members of the Congress Party – the main Opposition – who not only participated in the debate in a very constructive manner but have made suggestions which are eminently reasonable.
I am grateful to Shri Mulayam Singh Yadav for having participated in the debate. I would only like to tell him that he has a long way to go and the kind of opposition that was demonstrated here was perhaps not necessary. It is an important point. It was made across party lines in this House. It was in regard to be able to move with the times. This is the essence of change. If any individual, any society, any nation or any political formation does not take into account the changes which are taking place all around us within the country and outside, the chances are that we shall be left behind in this race.
I am prepared to accept without hesitation that when the life insurance business was nationalised in 1956 or the general insurance business was nationalised in 1970, there was perhaps a case for the same. But the entire situation has undergone a complete change today. Therefore, what was valid yesterday is not valid today. It was this perception which perhaps persuaded the then Government of the Congress Party to appoint a Committee under the chairmanship of former Governor of the Reserve Bank, late Shri R.N. Malhotra, to go into the whole question of insurance sector reforms. This question was gone into by that Committee. That Committee submitted its report and made a number of very important and valuable suggestions. They have been examined by three successive Governments over a period of time very carefully and very deeply.
What I have brought before this House today and what I brought before this House last year was based on that very careful examination of the recommendations of the Malhotra Committee. So, it is not something which has happened suddenly. There is a great deal of thought and examination which has gone into this and it is on the basis of that examination that we stand here today; the discussions have been held and I am here to reply to those discussions.
It has been suggested that there has been change in the position of the Bhartiya Janata Party since 1996 when this Bill was brought in another form by the then Government. I have had the occasion in this House to stand up and clarify that the Bill which was brought by the United Front Government and the Bill that we have brought are substantially different from each other.
The Bill which was brought by the then Government was a Bill which porposed the setting up of an Insurance Regulatory Authority only. It did not talk about the amendment of the LIC, GIC Act. It did not talk about the opening of the insurance sector to private sector Indian firms. It did not clarify how we shall define the Indian private company. There was a certain vagueness about that Bill. I cannot say whether it was deliberate or it was
inadvertent but when those issues were raised in this House, there was no satisfactory reply forthcoming. We have taken care of those problems in the present legislation.
We have been quite candid in our approach. I would like to say that the intention of the Government was clearly set forth in the Budget Speech which I made in this House on the 1st of June 1998, where I said that the insurance sector shall be opened for competition by private Indian companies. That was clearly stated by me in that Budget Speech — a Budget, which was adopted by the Twelfth Lok Sabha in all its entirety.
SHRI BASU DEB ACHARIA (BANKURA): Without any discussion.
SHRI YASHWANT SINHA: It was this year, it was not last year. Last year, we had a full discussion. Last year, the 1998-99 Budget was fully debated in this House and approved. Therefore, it is not that when we came with this Bill, we were springing a surprise. The intention of the Government, as I have said, was clearly stated in my Budget Speech.
Now, having said that we will open it for competition by the private Indian companies. We had to clearly define what we meant by private Indian companies. But before I come to that, I would like to hasten to add what this Bill is not about, because there appears to be a great deal of misunderstanding in this hon. House, and based on this misunderstanding a great deal of misunderstanding outside about the nature and content of this Bill.
This Bill is not about the privatisation of LIC and GIC. Let me make it absolutely clear. The Government has no intention to privatise LIC and GIC. We are not even going to dilute the Government””s holding in the LIC, GIC. If the Government is holding 100 per cent of the equity of the GIC and the LIC, which is a statutory body, Government, I am making bold to say, has no intention of diluting that equity or that statutory nature of the LIC… (Interruptions)
SHRI BASU DEB ACHARIA : Only five crores of rupees … (Interruptions)
THE MINISTER OF FINANCE (SHRI YASHWANT SINHA): I did not interrupt you.
Mr. Speaker, Sir, a point was made here about the size of LIC and GIC, about the danger that it posed to the workers in LIC and GIC. I would hasten to add that all these are entirely misplaced. First of all, as I said, over a period of time, ever since Malhotra Committee recommendations were made public, LIC and GIC have been preparing for competition. Why should LIC and GIC shrink from competition? I see no reason for that because LIC and GIC are operating in most countries of the world. They have the subsidiaries of LIC and GIC are they are operating in many countries of the world. They are facing international competition in those countries. LIC and GIC are fully prepared and absolutely well-equipped to meet the threat of any competition.
I have talked personally to the Chairmen of both the Corporations. I can say without fear of contradiction that LIC and GIC are not only fully prepared but will be able to meet any kind of competition from any quarter successfully and there is no danger of their business going down. Therefore, the question of the workers in LIC and GIC losing their jobs is again misplaced. As a result of this competition, there is not going to be any displacement of the workers of LIC and GIC. I have the fullest sympathy with them.
I think that certain amount of misapprehension, certain amount of misunderstanding has sought to be created. I have gone out and met them; I have gone out and talked to them; I have gone out and explained the whole position to them; and it will be the effort of the Government to continue to do so so that any misapprehension, any misunderstanding in their mind is fully taken care of but there is no danger of any LIC worker, any GIC worker losing his job as a result of this competition.
What has been the experience elsewhere? The banking sector was opened up for the private sector in this country. Have the public sector banks lost their share of the market? Has there been retrenchment on that account? My answer is, `no””.
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What has happened to the mutual funds? There was a time when UTI was the only mutual fund which was operating. What has been the result? The result has been that over the years, up to 1987, their business went up from Rs.4,000 crore to Rs.16,000 crore. When we opened the market for the private mutual funds, then what has happened? It has gone up to Rs.80,000 crore. When the cake becomes larger, there is more for every one. Now that is exactly what we are trying to do. The cake in the banking sector has become bigger. The cake in the mutual fund industry has become bigger. It has been possible both for the private sector and the public sector to flourish in those situations. Therefore, for any one to fear that LIC and GIC will lose their business, that their workers will have to face retrenchment, that they will run into any kind of problem, that their business will go down, I will say, with all the emphasis at my command, that this is not correct because the total size of the market will be going up substantially.
Mr. Deputy-Speaker, Sir, there is other thing. Figures have been quoted here. I do not have to go into them as to how despite very good performance on the part of GIC and LIC, they have not covered not even a fraction of the population. I am not standing here and denigrating LIC””s and GIC””s performance in any manner. They have done extremely well. Their contribution to national development has been very significant. All those facts are fully accepted. But, on the other hand, the facts which have been brought before this House that the total premium collected by LIC and GIC together is just a little over two per cent of the GDP; that while their business has been going up, unfortunately, they have not covered the entire coverable population, not even a fraction of it. That also remains a fact. I am not going into small complaints that my claim was not settled by LIC or GIC in time or somebody misbehaved somewhere. I am not going into those smaller issues. I am saying clearly that LIC and GIC have done very well. They have a record. We can all be proud of but in a country of India””s size and dimension, to expect only one company in life insurance and only one company with four subsidiaries in general insurance to be able to cover the entire emerging business is, perhaps, not correct. Therefore, there is a need for more players in this market.
We have, therefore, decided to open it for competition. Now, why should anyone shrink from competition? The whole essence of democracy is competition. Don””t we face competition when we go and contest elections? I cannot understand why anyone in this country should shrink from competition. It is unfortunate that we, as a nation, have not adopted a competition policy for all these 50 years. And, that is why, in this year””s Budget speech, I have talked about a national competition policy, a policy which will come before Parliament and we will discuss the competition, the various elements of the competition policy and will decide what kind of competition policy we should follow. But whether we like it or not, Mr. Deputy-Speaker, Sir, the fact remains that competition has come to stay. Other kinds of competitions are knocking at our doors and it will not be possible for us, as a nation, to keep competition away. Therefore, we should not shrink from competition.
I believe that when I said, private Indian companies, there is a much greater consensus in this House in that regard. Now some people have an objection in regard to foreign equity in Indian private companies. Now, like the previous Bill which was brought by the United Front Government, Mr. Deputy-Speaker, Sir, if we had left it vague, then what would have been the result? Under the Indian Companies Act, today any company which is registered in India is an Indian company. A hundred per cent subsidiary of a foreign company registered in India under the Indian Companies Act is an Indian company. Therefore, it became essential for us to define what exactly we meant by an Indian company and that is what we have proceeded to do. We have suggested originally when I introduced this Bill last year in the Twelfth Lok Sabha that there should be a cap of 26 per cent on foreign equity and there should be another 14 per cent for NRIs and OCBs. OCBs are entities which have more than 60 per cent holdings of the NRIs. That is how, the OCBs are defined.
This Bill went to the Standing Committee on Finance. All the Parties in Parliament were represented. It was considered by the Standing Committee on Finance and they suggested that we should delete this 14 per cent and NRIs and OCBs, Mr. Deputy-Speaker, Sir, should also be included within this 26 per cent. We did not hesitate to accept that recommendation because it was based on consensus. That is why, today, the present Bill caps it at 26 per cent including NRIs and OCBs. We have gone a step further. We have defined it. In one of the provisions of the Bill we are saying that neither through their subsidiaries nor through their nominees will it be possible for any foreign company to increase their share-holding through the back-door. We are taking even that care so that foreign equity is capped at 26 per cent and remains at 26 per cent. We have not made it compulsory. It is very important, Mr. Deputy-Speaker, Sir, for the House to take note of this. It is only an enabling provision. We are not forcing Indian companies that you must have 26 per cent foreign equity. We are merely saying that if you wish to have foreign equity, you want to have a foreign collaboration, then you can go up to 26 per cent. I am quite sure there will be Indian companies who will be hundred per cent Indian companies and who will not like to share the equity with anyone else.
Those hundred per cent Indian companies will also be doing business under the new dispensation. So, it is not unlike in some other sectors that we are saying that there must be a compulsory 26 per cent foreign equity. It is open to the Indian partner to decide whether they want to have 26 per cent or they want to have 10 per cent, or they want to have 14 per cent. It is entirely up to them. Twenty-six per cent is the cap. It is an enabling provision. Why have we kept it? We have kept it because we want technology to come into this country in this sector. Now, for any one to say it is a very simple area – life insurance and general insurance; and there is no need for technology, then, I am afraid I will have to respectfully differ.
Mr. Deputy-Speaker, Sir, the world has progressed. There are all kinds of insurance products which are being marketed in various countries of the world, which are unfortunately not yet available in India. It is our belief that with this opening up, it will be possible for those insurance products to come up in this country and provide both depth and weight to the market.
Now there is another angle. We are all aware of the fact that in many countries in the world, health insurance is not provided directly by the Government. Health insurance is provided through insurance companies. We all are aware of how woefully short health care is in this country. We have set targets which we have not been able to achieve. Now, through a larger coverage in the insurance sector, it is possible to cover a larger segment of the population through health insurance. For instance, there are pension schemes. There are sections of employees, sections in the unorganized sector, particularly, who have no pension cover. Now, there could be insurance companies which will provide them pension facility. They can make small contribution. That will come in handy when they retire. Now this is the kind of social security which will become possible once the insurance sector is opened up, and that is why we are putting social service, social sector obligations even on the newer companies. We have said that there will be an absolute level-playing field, that we shall impose no obligation on the public sector which we shall not impose on the private Indian companies. There is no way in which they can get away with something which LIC and GIC will have to bear as social sector obligation. So, let there be absolutely no doubt. This
law is going to apply equally to the public sector as well as to the private sector and all the obligations under this law shall be imposed on the public sector.
SHRI MADHAVRAO SCINDIA (GUNA): Can I have a clarification?
