The Hindu Business Line : Raise insurance FDI cap to over 50 pc, remove tariff curbs: Mulford

THE US Government today strongly advocated a further liberalisation of the Indian insurance sector by hiking the foreign direct investment cap to over 50 per cent and removing all tariff controls.

Addressing a conference on insurance here on Thursday, the US Ambassador to India, Mr David C. Mulford, said that delay in raising the cap from 26 per cent was being viewed by investors as a "breach of faith" and was hurting India's credibility among foreign investors.

"For some time there has been an understanding that the FDI cap will be raised to 49 per cent and many companies entered the Indian market with this expectation. Failure to follow through in raising the cap is increasingly seen by investors as a breach of faith," Mr Mulford said.

Mr Mulford was speaking at the conference on `Building a vibrant Insurance market in India' organised by the US Agency for International Development and the Insurance Regulatory and Development Authority (IRDA).

Demanding that the liberalisation should happen "not five years from now, but soon." Mr Mulford said that the Government should consider pushing the FDI level to above 50 per cent so that foreign investors have management control commensurate with their investment. He said raising the FDI cap would help India "regain its credibility in the eyes of foreign investors."

Mr Mulford said there was a "strong case for raising the FDI cap for reinsurance and auxiliary insurance services, such as brokerage and actuarial services."

The United Progressive Alliance Government in its first Budget had indicted that FDI cap in the insurance sector would be hiked to 49 per cent along with similar liberalisation moves for the aviation and telecom sectors.

"We have seen what happens in India when a market is truly opened up. We saw it in the IT sector, we saw in the telecom sector and we are seeing it in the aviation sector. Why can't insurance be next?" Mr Mulford queried.

Stating that the "heavy hand of Government" was visible in price controls, Mr Mulford said such practices "distorts the market and makes it inefficient." He said that the IRDA needs to dismantle the tariff regime to make segments such as fire and car insurance competitive.

Mr Mulford also said that the Government should revisit the Rs 100-crore capital requirement to encourage more health insurance companies to enter the Indian market. "The current minimum capital requirement of $22 million (Rs 100 crore) for setting up a health insurance company is a significant barrier to entry, particularly when FDI is restricted to 26 per cent," he said, adding that it was "not surprising" that not a single health insurance company has been registered since the sector was opened up.

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