When Nirmala Sitharaman, the Finance Minister of India declared a raise in the Foreign Direct Investment (FDI) cap to 74 per cent from 49 per cent in the insurance sector and foreign ownership and control with safeguards, it faced mass appreciation as well as criticism. The introduction of this legislation and the reaction of the opposition to it is a cautionary and instructive reminder of how Indian politics.
To make things more understandable to you, both the BJP and Congress rejected, and even supported, raising the ceiling at various occasions, depending on whether they were in the government or the opposition.
So the argument can be seen vividly as the Insurance Act, 2015, comes back with an extension to Parliament, its echo going back to 1996. That December, P Chidambaram, then with the Congress of Tamil Maanila, who was Minister of Finance in the government of the I K Gujral United Front, introduced the Insurance Regulatory Authority Bill seeking to create an insurance sector regulatory authority. The Standing Committee has been referred to the Resolution. In his February 1997 Budget speech, Chidambaram said that he proposes to move the requisite amendments to allow GIC (General Insurance Corporation) to launch joint ventures, as well as to allow selected Indian players to enter the health insurance industry. Well, Good.
But the bill caused the stiff opposition from the left. The late A B Vajpayee said in Lok Sabha in August 1997 claimed that the BJP was in favour of allowing private companies to engage more in the insurance sector. Competition in the insurance industry should be in effect.
On foreign participation, however, he said that the Minister of Finance believes that this bill does not allow multinationals to join without restrictions. But in this respect, we have some apprehensions. The then finance minister made repeated attempts at persuading the BJP opposition, but still, the questions remained.
The anticipation that foreign insurance firms will join India is misplaced, Chidambaram said, and no such proposal has been made.
The late Jaswant Singh was more unambiguous. He said that “it is our view that the insurance market must be available. Second, in our minds, we’re clear that… it has to be open to Indian entrepreneurs. Third, in our cognisances, we are equally explicit that if you permit… foreign corporations, you will do two very big wrongs. First, you’re going to allow foreigners to use, mainly Indian capital… and second, you’re going to… prevent the growth of a healthy Indian insurance industry that can stand up on its own.”
The bill was finally taken back. Any kind of opening up to the private sector is opposed by the Left. There is a Congress that cautiously welcomes an opportunity. There is the BJP that only helps the Indian players with an opening…”If I want to carry on the business of handling the finances of this country and reforming, with these three places staring in my face, I have to come back to you again and again and try to persuade you,” Chidambaram said to Lok Sabha on August 6, 1997, shortly before withdrawing the bill.
But, in 1998 the tables turned around.
Yashwant Sinha, the Vajpayee government’s finance minister, introduced a bill enabling up to 26% of FDI in the insurance sector. But the Bill lapsed in April 1999 due to the collapse of the NDA government. Sinha again tabled the Bill in November 1999.
Sinha tried to draw a distinction between his and the UF’s Bill stating that in response to the debate, despite a walkout by the Left, Samajwadi Party and the RJD, a Bill that suggested only the creation of an Insurance Regulatory Authority. The amendment to the LIC, GIC Act was not spoken about. It did not speak about opening up the insurance market to Indian companies in the private sector. It did not explain how the Indian private company should be named.
The NDA government played with the idea of raising the limit to 49 per cent before its demitted office in 2004 if the balance of 23 per cent was granted to NRIs, PIOs, OCBs, FIIs, but it was opposed by Congress.
In 2004, the government moved. And the Left and the BJP were on the same side when the UPA, expressed its intent to increase the FDI cap from 26 to 49 per cent.
Chidambaram, back as finance minister, suggested raising the sectoral ceiling for FDI in insurance from 26 to 49 per cent in his first budget speech on July 8, 2004. Vajpayee objected: “Hum karenge virodh”. The UPA introduced a bill to increase the FDI limit to 49 per cent in December 2008. The BJP has been refusing to play ball.
The Bill was referred to the Finance Standing Committee. The Standing Committee headed by Yashwant Sinha submitted its report in 2011 recommending that the insurance FDI cap should not be increased.
The UPA made another offer in 2012 to increase insurance FDI to 49 per cent. Chidambaram met Arun Jaitley and Sushma Swaraj, who were then opposition leaders in both houses, but was unable to make any progress.
The government changed again and, as finance minister, Jaitley lobbied for the passage of the proposal this time.
The Insurance Laws (Amendment) Bill, 2008, which proposed raising the ceiling, was referred to a Parliamentary select committee in August 2014, months after the Modi government came to power, after opposition from Congress and other parties.
Since the Bill was hanging fire, the Government enacted an order in December 2014 to increase the FDI cap. And in March 2015, facing opposition from the Lok Sabha, the government introduced a bill to replace the decree and passed it.
This was done in view of a similar Rajya Sabha bill pending. Days later, after Congress and some other parties supported the ruling NDA, the Rajya Sabha also passed the Bill. The SP, BSP, JD(U) and DMK staged a walkout, but the government, which also had the support of allies Shiv Sena and Akali Dal, stood by the Congress, NCP, BJD and AIADMK.
On March 12, 2015, Congress’s Rajeev Gowda said in a debate that, This Bill should have been passed in 2008. There should have been millions of Indians taken under the insurance net. And we didn’t manage to do that… Those on the other side, when they were on this side, had all kinds of reasons for the financial inclusion of insurance… the poorest of the Indians…I’m glad they came to their senses. We are not going to take ‘U’ turns, unlike them. We are going to make sure that we support this Bill.
Six years later, the government of the BJP is proposing to increase the cap to 74 per cent, and Congress has indicated its support for Chidambaram as “inevitable.” On Monday, he said that, “But I remember the day in 1997 when the BJP voted against the government’s bill of the day allowing 20% insurance FDI… Today, they have done a full circle and they allow 74% insurance FDI, which is all right in terms of money.”