Resist the attack of the Modi Government on Insurance and Pension

Hold demonstrations on the same day when Insurance employees will go on strike

Modi Government proposed to submit the bill  for enhancing the FDI ceiling limit in Insurance Companies from 26% to 49%, in Rajyasabha on 4.8.2014. Since the opposition parties have demanded to refer the bill to a select committee before submitting it in Rajyasabha, the Government deferred the submission on 4.8.2014 and  held meeting with opposition parties on 4.8.2014  requesting them to accept this bill. Since it has no majority in Rajyasabha, the Government is trying to convince the opposition parties to support the bill. Since there is no consensus, it was decided to meet again on 5.8.2014 and 6.8.2014. The NCP and BJD have already decided to support the bill as proposed by the Modi Government. The Congress party is not opposing the bill, but wants some amendments in it. Except the Left Parties, all other parties are not opposing the bill, although they seek some modifications in it.  The Government is trying to convince other opposition parties except Left in order to get the bill approved by Rajyasabha. In case the bill gets approval of the Rajyasabha,  the very next day the insurance  employees will go on strike. If Rajyasabha approves the bill, thereafter, it would be sent to Loksabha for its approval. If the bill gets the approval of the Parliament, the ceiling limit of FDI in pension sector also will be enhanced automatically erom 26% to 49% as per thee provisions in the PFRDA(Pension Fund Regulatory and Development Authority) Act.

Raising the FDI ceiling limit is the demand of the American Corporates. Neolieral circles are demanding that there should be no regulation on the coming in and going away of finternational finance to our insurance, banking and pension sectors.

In 1999 the Vajapayee Government has brought “Insurance Regulatory and Development Authority Act” to allow private companies and 26% FDI in insurance sector. Since then, the international and national big capitalists are pressurizing for enhancing the FDI limit to 49% in insurance sector. UPA-1 Government could not do so due to the opposition from the Left Parties on whose support it depended. After the withdrawal of the support by the Left parties, the UPA-1 Government has introduced the bill in Rajyasabha in 2008 for enhancing the limit to 49%, but could not get it passed. UPA-2 also tried, but failed to get it passed. The Parliamentary Standing Committee at that time which was chaired by the BJP leader Yeswant Sinha has recommended that there was no necessity to enhance the ceiling limit to 49%.

But now, Modi’s BJP Government is introducing the amendment in the Rajaysabha, although BJP opposed the same when it was in opposition. Modi Government is now doing this only to prove that it is committed to neoliberal economic policies and its goal is to satisfy the international finance capital. The Congress Party was in favored this bill previously and therefore it is likely to support this bill.

The argument of the Government and neoliberalists that raising ceiling limit of FDI to 49% will help in mobilizing capital for developing insurance sector so that more and more people are covered under insurance is not a valid argument. Much capital is not required in insurance since it is not a capital intensive sector and India is capable of investing the required capital in insurance. The FDI or any capital from foreign countries is not required. Moreover the history of foreign insurance companies is the history of serious threat to the insurance funds of the people. The biggest insurance Company AIG could be saved from bankruptcy only with the infusion of huge funds of the American Government. There are several instances where these foreign insurance companies failed to pay the insured amount to the customers. The insurance sector in India was nationalized in 1956 because of thee scams and failures of the private insurance companies. Therefore enhancing the FDI limit in insurance to 49% is nothing but sacrificing the insurance funds built by our people at the altar of the profit hunger of the foreign and Indian private insurance companies. These companies will invest in risky areas to get higher profits and it will endanger the insurance funds.

The PSU Life Insurance Corporation(LIC) was able to capture 74% of the life insurance market in a tough competition with the private insurance companies. It has been paying considerable dividend amounts to the Government and investing huge amounts for the developmental activities of thee Government. Ignoring these beneficial aspects and opening more and more of our insurance and pension sectors for satisfying the profit hunger of the big finance and corporate companies is irregular and unjust.

In banking sector, at present the FDI limit is 26%. But their voting rights were restricted to 10% even if they hold 26% of the shares in the private sector banks. The UPA-2 Government has raised this limit of voting rights of foreign banks in our private banks from 10% to 26%, thus allowing the foreign banks to control Indian banks. Now the Modi Government has declared large scale disinvestment of PSU banks.

All these steps taken by earlier UPA Governments and further continued by the present Modi Government will make our insurance, banking and pension sectors privatized and foreign dominated, thereby making the funds invested by our people in insurance, banking and pensions fund companies unsecure.

The then NDA Government lead by Vajpayee has brought the Central Government employees recruited on or after 1.1.2004 out of the purview of Government pension and imposed on them a new contributory pension scheme. As per this new pension scheme, the employee will contribute every month 10% as pension contribution and the Government also will contribute equal amount and the entire contribution will be deposited in a pension fund company as per the option of the employee. But the amount of pension the employee will get from the pension fund company after retirement is not known. It depends on the profits the pension fund company will get on its investments in the share market.If the pension fund company becomes bankrupt, the employee will get no pension. Thus the contribution from the employee for pension is definite and certain whereas the pension payment after retirement is not definite and it is uncertain.But this new pension scheme endangering the pension of the Government employees recruited after 1.1.2004 was not implemented by the Left lead Governments in Kerala, Bengal and Tripura at that time, whereas all other state governments have brought their employees recruited after 1.1.2004 under the purview of this new pension scheme.

Thus the Government employees(except in Bengal, Kerala and Tripura where the Government pension scheme continues for all) are divided into two categories: (1) Those recruited before 11.1.2004 and under Government pension rules as per which they need not pay any pension contribution while they are in service and will get 50% of their basic pay as pension from the Government after retirement, and (2) those recruited after 1.1.2004 who have to pay 10% of their salary every month as pension contribution without any guarantee for pension after retirement.

The UPA-1 Government that came after Vajpayee Government has tried to enact this new pension scheme in the Parliament in the name of “Pension Fund Regulatory and Development Authority Act”. But it could not do so due to the opposition from the Left parties on whose support it depended at that time. But the UPA-2 Government which was not dependent on Left Parties got the approval for this bill with the help of the then opposition party BJP. This PFRDA Act allowed 26% FDI in pension fund companies and also stipulated that whenever the FDI ceiling is more in Insurance sector than this 26%, it will be automatically applicable for pension fund companies also. Thus if the Parliament approves this raising of FDI ceiling in insurance to 49%, it will be automatically applicable for pension fund companies also.

If in an insurance company or in a pension fund company the share of a foreign investor is 49% and the remaining 51% shares are divided among Indian investors, the share of foreign investor will be more and the foreign investor will dominate the company. Thus the BJP Government is trying to make our insurance, banking and pension sectors privatized and foreign dominated.

The PFRDA Act provided the powers to the Government that whenever it decides so, it can bring even the employees recruited before 1.1.2004 under the purview of this new pension scheme, by issuing a notification. Not only this. Even the existing Government pensioners also can be brought under the purview of this new pension scheme by the Government by issuing a notification. Thus there is a hidden threat to the pension of those recruited before 1.1.2004 and also for the pension of the existing pensioners.

The Congress will be favorable in principle for enhancing this ceiling since it has proposed the same when it was in power. But the Congress says that the BJP’s bill now under submission to Rajyasabha is different from what they proposed, in that, the Congress’s bill is for the ceiling limit of 49% for FDI only and such FDI will be fully with the Insurance Company without leaving it, whereas the BJP bill ahs included the portfolio investments which can leave the company as and when they like, in this enhanced ceiling limit of 49%. Therefore Congress is saying that it has to think before extending support. If Congress supports and the bill gets approval in the Rajyasabha, thereafter, it has to be sent to Loksabha for its approval. The AIIEA(All India Insurance Employees Association has decided to go on one day strike the next day as and when the Rajyasabha approves the bill.

This attack is not only on insurance sector. It is an attack on pension and banking sectors also. Therefore it is the responsibility of all the government employees, bank employees ,  pensioners  and their organizations to support this strike of insurance employees by holding demonstrations when they go on strike.

Letter written by Com Amanulla Khan, President, AIIEA, to Smt Sonia Gandhi, President, Congress Party, requesting not to extend support to the bill enhancing the FDI ceiling limit in Insurance from 26% to 49%

                                                                                             July 28, 2014                                                                                     

Smt. Sonia Gandhi,

President,

Indian National Congress,

10, Janpath, New Delhi-110011

Dear Madam,

FDI HIKE IN INSURANCE

The All India Insurance Employees’ Association is the biggest and oldest trade union of insurance employees.  We have been playing a very constructive role in the growth of the public sector insurance industry with a clear understanding of its role in the national economy.  We have been agitating against the FDI hike in the insurance sector from 26 percent to 49 percent.  Our opposition is not based on any partisan reasons but on the grounds of its impact on the national economy. We firmly believe that financial sector is the key to national development and liberalization of this sector is fraught with dangerous consequences. The global financial meltdown and the consequent economic crisis vindicate our understanding. Therefore, we are disturbed by the statements of the important functionaries of the Indian National Congress in support of the decision of the NDA government to hike the FDI and steps towards privatization of the public sector general insurance companies.  We, therefore, wish to place our views on the subject and request you to reconsider the support to Insurance Laws (Amendment) Bill.

The global insurance scenario is not very happy. Since the financial crisis in 2008, the advanced industrialized nations are experiencing stagnation in premium income. The annual growth rate in North American is (-) 2.9%, Oceania (-) 3.7% and Western Europe (-) 0.6%. (Sigma Report 3/2014). Moreover the demography has made insurance a difficult business to operate in these markets. Therefore, it is natural for the multinational companies to demand further opening up of the insurance sector in India which is very promising with a young population. But we need to carefully analyse the consequences of higher FDI limit and the benefits or otherwise to our national economy. Today there is a consensus world over that domestic savings play a large role in capital formation and economic development and therefore it is not prudent to allow the foreign capital greater access and control over the domestic savings by increasing the FDI limit.

The two major arguments in favour of increase in the foreign equity limits are:

(1)  The private insurance companies are starved of funds and it has become inevitable to increase the FDI limit; and

(2)  The increase in the FDI limits will help deepening the insurance market and increase the levels of penetration.  The resources so generated will help funding of long term infrastructure projects.

We are not in a position to agree with both these arguments on the basis of the existing realities. The reasons for our disagreement are:

a)     Insurance Sector unlike manufacturing is not capital intensive. In many countries the start-up capital for an insurance company is much lower than in India. The high solvency margin and other regulations are so framed as to make it look that an insurance company cannot do business without FDI. (FDI in insurance – R.Ramakrishna – Actuary).

b)   There are around 50 joint venture companies operating in the country both in life and non-life segments. The Indian promoters of these companies are big industrial and financial houses. They have enough resources including easy access to funds for deployment in case of need.  They also have the option of raising resources through initial public offerings.

It is not possible to accept that they lack resources for investment in their insurance ventures.

c)    There is no relationship between the capital employed and the business procured. The following table justifies our argument. The data is as on 31^st March 2013.

Slno	Name of the Company	Total Capital & Reserve (in Crore)	Total Premium Income earned (in Crore)
1	Bajaj Alliance	4844	6893
2	SBI lIFE	2710	10450
3	Bharathi AXA	1999	745
4	HDFC Standard	2204	11323
5	LIC	100	208000

d)   The above table clearly points out that higher capital does not mean higher mobilization of premium income. What bring increase in premium income is a better trained agency force and other efficient channels of distribution.

e)    Insurance penetration and density depend upon the growth of the national economy and the disposable income in the hands of the people. Despite poor incomes and very little disposable incomes, India has done extremely well in insurance. The World Economic Forum gave Indian Life Insurance industry the top global ranking and it ranked India number 3 in general insurance business in terms of density. India’s global ranking is 11 in volumes of life insurance premium in 2013. (Sigma Report.)

f)     The criticism on insurance penetration is unnecessary, though there is a great possibility for improvement. Life insurance penetration in India at 3.1% compares favourably with 3.2% of United States, 2.9% of Canada and 3.1% in Germany. India has a higher level of penetration than all the Latin American countries and many of the developed nations. We can improve upon this if the incomes levels and disposable incomes increase.

g)    The argument that entry of private sector has deepened insurance market needs close scrutiny. We may point out that LIC recorded compound annual growth rate of 19.5% in the nineties. We strongly believe LIC would have continued to grow at this rate had the sector not been opened. With a 19.5% CAGR the total premium of LIC would have been Rs.337256 crore for 2013-14. Interestingly the combined TPI of LIC and the private companies is the same figure for 2013-14. This again makes it clear that the entry of private companies did not result into expansion of the market. Rather the private companies tried to capture a share of the market created by the public sector. It is also a fact that the private companies concentrated on the big ticket policies with no social obligation for the poor and disadvantaged.

We are, therefore, convinced that opening up the sector did not benefit the economy nor did it benefit the insuring public. The claims that opening up of insurance sector would open the floodgates for the foreign capital to benefit infrastructure remain unsubstantiated. The insuring public with high lapsation ratio and high rate of claim repudiation by the private companies has suffered. In the face of these realities, it is imprudent to give the foreign capital a greater space and control over the domestic savings.  We have real apprehension that FDI hike will only succeed in hastening the process of mergers and acquisitions which would have serious impact on the public sector and consequently the national economy itself. The claim that even when the foreign equity limit is raised to 49%, the management and control will remain with the Indians is unconvincing. You are aware that with 26% equity participation the foreigners are now controlling the functioning of many of the joint venture companies.

We, therefore, request you to review your support to the FDI hike. We will be very happy to answer any clarification required on our assessment. We will also be happy to meet you personally to explain our stand if it so required.

Thanking you,

Yours faithfully,

                                                                                       

 Sd/-

(Amanulla Khan)

     President