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The government needs to carefully consider the health of the insurance industry before bringing in foreign direct investment, according to Prabodh Thakker, President-Elect at industry lobby Indian Merchants Chamber (IMC) and Chairman of Aon Global Insurance Brokers.
The new government is expected to address the long pending Insurance Bill, which looks to raise the foreign direct investment (FDI) cap in the sector to 49 per cent from the current 26 per cent.
“I am not against FDI, but timing is important. We need to first strengthen our domestic business and systems. FDI in distress is not good, we need to create a good business environment and see the business flourish, then allow FDI. Otherwise we will end up selling our assets in distress,” said Thakker.
While most foreign promoters have been lobbying for an increase in FDI, industry experts say, some domestic promoters, especially of the established firms, are opposed to FDI. Interestingly, the BJP-led NDA had opposed the passage of the Bill last year.
“Reforms need not be FDI-centric. Reforms mean evolution in rules and regulations, judicial reforms — these are all-powerful tools and help the environment for doing business. Do those first, look at the growth cycle, and then bring FDI. Then valuation will increase and domestic promoters will benefit,” said Thakker. He said the IMC plans to submit suggestions to the new government on bringing down stake in state-owned insurance companies, which will help the government raise a substantial amount. Other suggestions include making it mandatory to buy a personal accident policy for employers and buildings across the country for protection against natural disasters and making India a reinsurance hub.
“We need to have an in-built tax and administrative mechanism which will attract reinsurers to set up shop domestically. We will see inflows of billions of dollars of reinsurance premium domestically which will also cater to the need of the domestic insurance market,” said Thakker.
Judicial reformsHe also said the government needs to look at judicial reforms, remove ambiguity in law and the new Companies Act, which imposes steep penalties and threat of jail for minor violations.
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