Sucheta Dalal :Doing business with hands tied
Sucheta Dalal

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Doing business with hands tied  

December 11, 1999

There is no doubt at all that the government monopoly over the insurance business had to end. There is a crying need for better service, more innovation, and a comprehensive insurance cover. But more importantly there is a desperate need for a system which is not based on routinely denying claims (unless one is greasing the release of funds) instead of paying up legitimate dues. The need for change was so imperative that one tended to ignore the plea of Indian monopolies that their huge staff surplus, archaic systems and directed lending to the social sector put their very survival in jeopardy.

Now that the Insurance Bill has made it through both houses of Parliament, it is time to take a sympathetic look at the future of the insurance monopolies. Here is a look at the future scenario with the help from insiders.

First the competition. Top global insurers set up office in India two years ago and waited for the insurance business to open up. Today they have studied the Indian market and are raring to go. Many of them, and the new ones who are inking agreements every few days, have already worked out their strategies for the Indian market. But more importantly, they have found a simple way of leveraging their 26 per cent stake into complete control over the Indian operations.

Since the foreigners will supply the know-how, the international documentation, the global experience in launching new instruments, and the training of staff, they have also ensured that they control management and top level appointments. Don't forget that the big foreign insurers have deep pockets and are willing to spend a lot of money in developing new markets. This money will be spent only if they control management. If anyone has any doubts that market development will not include high-powered lobbying to increase their stake in the joint ventures, or even to get rid of their Indian partners, then perish the thought.

Several Indian companies have entered into these joint ventures with their eyes open. They are quite happy to be minority shareholders if and when government policies change.

So how are government monopolies preparing for change? In different ways. At the staff union level, where there were sit-ins and strikes, people are unhappy about opening up business. They are aware that improved productivity and voluntary retirement schemes are inescapable if their organisations are to remain profitable and in business.

It is this audience and sundry MPs that Finance Minister Yashwant Sinha addresses when he declares that government will not dilute its stake in Life Insurance Corporation, General Insurance Corporation and its subsidiaries. But every time he reiterates his stance, the insurance companies blanch and quiver.

They would much rather have the Finance Minister include them in his privatisation plans and reduce government holding to under 51 per cent so that they can do business without worrying about scrutiny and questioning by the Comptroller and Auditor General (CAG), the Central Vigilance Commission (CVC), the Central Bureau of Investigation (CBI) and various Parliamentary committees.

The CAG, CVC and the CBI do have an important responsibility to discharge in India; it is also true that an absence of accountability will only breed corruption. But the transfer of power to these agencies who have the authority to question without requiring to understand the business has probably gone too far and is killing initiative and decision-making.

An insurance company chairman cites the example of a claim, which has been referred to several committees who all agree that it can and ought to be paid, but nobody wants to take a decision. Reason? A similar claim had been wrongly turned down in the past and has created a wrong precedent. Everyone is afraid of being questioned by the CBI or the CVC. Is there any doubt that business will flee into the arms of new insurers?

Another example is the CVC's diktat that all property purchases will only be through a tender and the lowest bid will have be accepted. The result is that insurance companies have simply not bought property for nearly a year. Invariably, the lowest bid is submitted by owners of decrepit properties or those with other problems. After several representations to the CVC, he has now modified the order and asked nationalised institutions to demand technical and financial bids. The technical bids will be called first and bad property weeded out, after which a financial bid will be called. There is no doubt about the CVC's good intentions, but the waste of time and additional paperwork only builds inefficiency.

Going abroad on business, or even to visit branch offices is a nightmare. Even the chairman and managing directors of government organisations have to go through the humiliating process of clearance and questioning by a series of junior bureaucrats before they are permitted to go abroad on legitimate business. Sending other staff for training or business is even worse.

Then there are the Parliamentary Committees and questions in Parliament. An entire army of people is deployed to respond to their demands. For instance, the Chairman and the top brass of a bank/insurance company was recently hauled up before the Parliamentary Committee on the spread of the national language to answer why Rs 2,500,000 was not spent on propagating the use of Hindi!

As this chairman who does not want to be named says, "I am expected to compete with the best in the world with my hands and feet tied-up." He believes that even today, LIC, GIC and their main subsidiaries are more than capable of taking on the competition and turning into effective and dynamic companies themselves. But it will only happen if government quits breathing down the neck of top management. If they are given the freedom to choose top class management teams and appoint and promote the right people. If they are allowed to hire and fire people to increase productivity. And finally if there is a sensible restructuring programme which covers the big two insurance companies and their subsidiaries.

Otherwise, having freed the insurance sector, the government will have to standby and watch government- owned companies go the way of the Steel Authority of India, Indian Airline and Air India. Now that government has passed the Insurance Bill, lets hope that it recognises the need to set free the erstwhile insurance monopolies.


Its over half a century after Independence But the government seems adamant not to learn that it needs to get out of business. At a time when venture capitalists and other lenders are chasing infotech start-ups, the prime minister has grandly launched a Rs 100 crore fund to be administered by SIDBI. Please, we do not need the government messing around in this business. What we need is norms for venture capital financing which makes their entry and exit easy. But can we ever escape a bunch of netas and babus wanting to play Godfather to entrepreneurs?

-- Sucheta Dalal