Monday, August 5, 2013

The un-reformist BJP…..finally agrees to 49% FDI in insurance but with a rider

By now it is clear which of the two national parties is pro-reforms. There was a time when the BJP pretended to be that. In fact, so much so that it was called by many to be right-of-center. Over time, what has become clear is that the party is right-of-center only when it comes to regressive social and religious ideologies, not economic policies. There, it shares space with the Left and the even-more-Left TMC. If there is one way the BJP can rope in the TMC into its fold, it can be economic ideologies!

Thanks to the BJP’s intransigence on FDI in Insurance, a “half cock” amendment to the Insurance Act is about to be passed. Rather than giving the foreign investor voting rights in proportion to its investment, the cap will be set at 26%. So the investor will put in 49%, get 49% of the economic rights, but will have the authority equivalent of only 26%. Even before this formula has been passed by Parliament, several leaders of the insurance sector are already saying that this will not help attract FDI. I am reminded about the silly process we went through with respect to FDI in multi-brand retail, where we first imposed bizarre restrictions, and then diluted them when investments didn’t follow, again thanks to the BJP’s pettiness. Pretty much the same thing can be expected here, except that alterations will be far more difficult since it will have to go through Parliament (changes in retail FDI policy can be brought in by the Executive).

There was an interesting ad put out in the Economic Times yesterday, obviously by the insurance companies though this is not specified. The ad titled “FDI increase in Insurance – Approving pensions but not insurance will not bring in FDI”, brought out an interesting fact. Almost all countries that are comparable to India allow a far higher insurance FDI. Look at the BRICS grouping. Brazil and South Africa allow 100% FDI, Russia 49% and China, 50%. Take the South-Asian grouping. Bangladesh and Sri Lanka allow 100% FDI, while Pakistan allows 51%. Take other Asian countries. Japan, Korea, Philippines, Vietnam all allow 100%, while Indonesia allows 80%, Malaysia and Thailand 49%. So a 49% clean FDI limit is the minimum in any of India’s comparable set of countries. How then can India afford to offer anything lower if it is serious about attracting FDI?

The ad also points out how small the insurance sector in India is, and how badly it needs to expand. Insurance is a capital intensive sector because insurance companies need to “provide” for every additional life insured (much like banks need to provide for every extra deposit raised). It’s an ideal sector where a higher FDI limit is required. It’s also not like we are talking of 100% here; we’re talking of barely making it to the levels that prevail all over. Why then put additional riders if not to hassle a government and harass an embattled industry? At least one global insurance company, Aviva, is planning to quit India. It’s insurance premium dropped by 11% in 2012-13. The ability of Indian groups to fund their portion of the required capital sometimes proves difficult even for large groups. The Bharti group for example has been wanting to exit its insurance JV with Axa for two years now. It’s deal with RIL was almost done, but eventually it didn’t go through. If the sector is in distress, and if the government is trying to make amendments, why should the BJP not support it whole heartedly?

India was forced to issue similarly warped FDI guidelines in the multi-brand retail sector, because of constant carping from the BJP. Everyone knows that we need more FDI in retail. Farmer lobbies have come out in support of the subject. And yet, the BJP disapproved of the plan. Thanks to its opposition, the government was forced to put arbitrary clauses in the policy – like allowing shops to only come up in 1 million + towns, seeking the state government’s permission before opening stores, and sourcing 30% of goods from SMEs whose capital would have to stay less than $1 million throughout. How crazy! Only now has the government decided to cock a snook at the BJP and make some changes. Even so, BJP state governments, including the “industry friendly” Narendra Modi’s, is opposing foreign retailers from opening up in their states.

So we’ve seen the BJP repeatedly opposing reforms. Is it because of their affinity for the local baniya, who routinely fleeces the Indian consumer? Or is it an ideological opposition to anything firangi; is this the BJP’s interpretation of “nationalism”? Or is it just pure obstructionism; blocking the government from going about its job? The BJP can always find a “smart” answer for every such behavior of its, but smart answers have stopped cutting ice with people. That’s probably why the party is hardly shown gaining seats in the 2014 projections, though the Congress is shown as going down. If the people are fed up with the Congress, they are equally with the main opposition.

Another point needs to be made. Why should the FDI limit be specified within the Act? Why can’t the limit be set by the Executive? In a hugely fragmented Parliament, getting Acts amended in Parliament is extremely difficult, if not impossible. In any case, Parliament hardly functions thanks to the BJP’s style of functioning. The first thing that must be amended in the Act is the removal of the FDI limits from the Act and the passing over of that prerogative to the Executive.

So in reality the BJP is quite leftist on economic matters. How queer that its PM candidate (well, almost!) is one who says he is pro-industry. He welcomes foreigners in auto, pharma, and even runs a bi-annual event (fraud?) called “Vibrant Gujarat”, designed to get FDI into the state. Yet, when his party builds its campaign projecting him as PM, it will adopt a line that goes exactly opposite of his own thinking. How queer!

The real truth is that we need to open up insurance cleanly. 49% FDI (or maybe 51%) with no caps on voting rights. We need to modify our mindsets. We need to welcome foreigners, not treat them as enemies who for some reason, just need to be allowed in. The Congress has shown its reforms credentials. Now will the BJP stand up and be counted? Or will it prefer to focus on its communal agenda (read about MP government forcing the Gita down the gullets of minorities?)….

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