August 03, 2014

FDI in Insurance: Appeasing US & Finance Capital

THE Modi government has extended a welcome gift to John Kerry, the US Secretary of State who is visiting India. The union cabinet has approved the raising of the FDI cap in the insurance sector from 26 percent to 49 percent. An amendment to the Insurance Laws will be placed in this session of parliament itself. This will fulfill a longstanding demand of the United States, as voiced repeatedly by the India-US business forum which was set-up during the UPA-1 government. The opening up and liberalisation of the financial sector has been a key reform advocated by the neo-liberal circles. These have involved deregulation of capital flows, entry of private sector in banking and insurance; foreign capital investment in these sectors and opening up to financial flows and financial innovation. In the case of the insurance sector, the Insurance Regulatory Development Authority Act was adopted in 1999 during the Vajpayee government which enabled the entry of the private sector and 26 percent FDI in insurance. Since then pressure was mounting to increase the cap to 49 percent. The Left parties opposed this move and prevented the UPA-1 government from doing so. After the withdrawal of support by the Left, the government introduced the Bill in 2008 in the Rajya Sabha. However it failed to get it adopted during the tenure of the UPA-2 government. The Standing Committee on Finance which went through the bill recommended in 2011 that the cap need not be raised. The BJP leader Yashwant Sinha had chaired this committee. Now, the Modi government has brought its first substantive legislative measure in parliament to increase the cap to 49 percent. This signifies its eagerness to appease international finance capital and its commitment to pursue neo-liberal policies. The Congress party which had wanted this Bill in the first place, will have no hesitation in supporting this measure in parliament. It is a case of tweedledum and tweedledee. The well worn arguments for more FDI in insurance are being trotted out, that it will bring more capital in the sector for expansion, that it will increase penetration of insurance cover among the people and that it will create more jobs. These can be easily countered, there is no dearth of domestic capital for this sector, the record of the foreign insurance companies do not inspire any confidence as far as financial stability and proper coverage being provided with their dodgy practices to maximise profit. The 2008 global financial crisis starkly exposed the vulnerability of the financial sector in the United States and how the people were defrauded by these companies. The AIG, the biggest insurance company was on the verge of collapse and had to be bailed out by the US government at a huge cost. Refusing to learn from this sobering experience, the volatility and vulnerability of the deregulated financial system is being imported into India’s insurance and financial sector. India’s life insurance sector was nationalised in 1956 after a series of failures and scandals in the private insurance companies. We are going back to those days. The risk of the entry of profit-seeking foreign companies, investing in high risk ventures and jeopardising the savings and interests of the people is real. The LIC, at present, competing against private players has got 74 percent of the market share in life insurance. The LIC is contributing a huge amount as dividend to the government and investing its ample funds in government directed development. Privatisation of the insurance and pension funds and putting them into the market is meant to enrich and profit the big financial and corporate interests at the expense of funds which are at the disposal of the government for development and welfare of the people. The raising of the cap in insurance will automatically mean increasing FDI in the pension funds as the Pension Fund Regulatory Authority Bill ties the limit of FDI in the pension sector to that of the insurance sector. This move must be seen in tandem with the opening of the banking sector to the private sector, where for the first time since bank nationalisation, industrial houses are eligible to start private banks. The FDI in banking sector is 26 percent, but the Banking Act has been amended last year to raise the voting cap from 10 percent to 26 percent. Thus foreign banks can now control Indian private banks. Large-scale disinvestment of shares of the nationalised banks has been promised in the budget. The struggle against financial sector liberalisation, of which the opening of the insurance sector to foreign capital is a part, is an important area of struggle against the neo-liberal regime. These policies are against the interests of the people and national sovereignty. This cannot be a struggle of the insurance sector employees alone. The entire trade union movement and the Left and democratic forces should take up this fight. Both inside parliament and more importantly outside, there should be a strong protest movement against the impending amendment Bill. (July 30, 2014)