So far so good

So it is almost official. The group of ministers on insurance seems agreed on permitting foreign equity in insurance, with a cap of 26 pe...

So it is almost official. The group of ministers on insurance seems agreed on permitting foreign equity in insurance, with a cap of 26 per cent. The group would limit total overseas investment in this sector, including that by NRIs and overseas corporate bodies, to 40 per cent.

The reported unanimity among the participating ministers is to be wholeheartedly welcomed. Indeed, a higher equity stake for foreign investors could be wished for. But adventurism is avoidable just now. This is a hugely sensitive project. Over-ambition for a government with strong swadeshi credentials and at a time of a crisis of global capitalism could cripple plans even for the longer term. So agreement on a cautious and gradual opening up is a good start. The crucial thing now of course is to prevent it from being torpedoed. This will not just happen. If the government is to push the Insurance Regulatory Authority of India Bill through Parliament this winter session to give the IRA statutory status and make the required changes inthe LIC and GIC Acts, some determined activism is required in the swadeshi parivar. The BJP cannot have forgotten how it gleefully pulled the rug from under P. Chidambaram’s feet when he tried to steer the same Bill through Parliament. It must work at not putting itself in a similar predicament.

The time is auspicious for drastically opening up and reforming India’s potentially gigantic insurance sector. At a time of economic slowdown and capital flight, opening this sector could stimulate the economy, not least by stimulating the infrastructure sector whose abysmal state is endlessly lamented. The government would be rewarded with a much-needed strengthening of its reformist credentials. The world, which, shaken by the Asian crisis, now pats India on the back, would have better cause to cheer it and repose faith in its economy.

There are good reasons why opening new participation to private domestic players is not enough. They are the size of the resources required as well as expertise. The freelybandied-about "insurance technology" that foreign investment in insurance is supposed to bring may be of a piece with noises about a new "global financial architecture" — fancy phraseology designed to impress and to intimidate. But it is not only for the capital that this sector has the potential to attract that foreign investment needs to be welcomed, though that is scarcely unimportant. An important reason to welcome it is the extremely primitive state of this industry in India. Ask any long-suffering consumer about the scandal that is insurance services in this country. Merely opening up the sector to domestic private companies will not bring the innovation that the global insurance market has already seen simply because Indian firms have not had the benefit of competition and international exposure in this sector. The whole point of leap-frogging, so often made about developing countries’ potential to catch up quickly, is that they have no need to reinvent the wheel. If the government can convince itssundry constituents of this, it would significantly redeem its economic credentials which, to date, are very little to write home about. Here is hoping it does.