The Virtue Of Incompetence

BARELY have all our politicians come out in such uniformly poor light as happened when the Government withdrew the Insurance Regulatory Bill in Parliament on August 6. The United Front seemed ignorant of basic arithmetic: surely, someone in the Government could have figured out in advance that with the Congress plenary session starting, most of the party's MPs wouldn't be around to get the Bill passed. Within the BJP, the more level-headed Vajpayee and Jaswant Singh were unable to control the rabid swadeshi elements. Congress MPs who were around in Parliament saw an opportunity to humiliate the Government and did so. And of course, those guardians of our integrity and morality and polity and whatever other -ity, the Left, who always know better than the people themselves what the people want, played their usual destructive role. Together, all our MPs managed to send clear negative signals to investors across the world: the UF of incompetence, the BJP of confusion, the Congress of treacherousness, and the Left of Ludditism.

Why should insurance be opened up? I can think of three reasons. The first is the pragmatic one. The world is moving relentlessly towards lowering barriers, and it is only a matter of time before we are forced to open this sector up to private investment or face international sanctions. If we open up insurance now, we can do it our way. This is far better than being dragged kicking and screaming to the altar a few years later. Besides, when the Left and the BJP raise the foreign bogey in insurance matters, they conveniently omit to mention that our own LIC and GIC operate in several countries outside India.

The second reason is the economic one. The country needs around Rs 1,200,000 crore over the next 10 years to fund infrastructure projects necessary to keep our GDP growing at 6.5 percent. Where is this money going to come from? Infrastructure projects have long gestation periods, so they need long-term funds, money that will be invested today and show a return only, say, 15 years later. The most significant source of long-term funds for infrastructure projects across the world are the insurance and pension fund businesses. They borrow long—the typical length of your insurance policy would be 15 years or so, and far more for your provident fund scheme—so they can afford to lend long.

The problem with India's insurance sector currently is that with only LIC in the life insurance business, and only GIC in the general insurance businesses, these markets have not expanded to their full potential. Competition, which implies greater choice of products and price wars, expands markets, monopolies don't. As far as individuals and households go, they currently have very limited choice of products, and even these are hardly marketed well. And the vast expansion of business that is taking place post-liberalisation needs all sorts of new kinds of insurance products that are simply not available at present. So there is definitely much more money to be raised by the insurance business in India, which can be directed into the infrastructure sector. And you can forget about reasonable GDP growth and prosperity if something is not done very fast about infrastructure. The belief is growing that we have already missed the bus.

Do not believe the ideological arguments that the Left spouts to justify their stance against opening up insurance. That's hogwash. The Left has a huge vote bank in the massive number of unionised staff in the insurance sector and these are the people the Left aims to protect, that's all. And protect against what? Against the possibility of having to turn efficient once competition arrives, against the spectre, doubtless disturbing, of they having to be polite to the policyholder, against the real threat that the mediocre and the truly incompetent will be recognised for what they are.

Which leads to the third reason, which is the humanitarian—I would even say the moral—one. None of these MPs who forced the withdrawal of the bill will ever have a problem getting an insurance claim. None of their relatives, friends or acquaintances will too. They will never have to wheedle or beg or bribe clerks to get the money that is due to them. They will not have to deal with mind-numbing bureaucratic procedures. Monopolies have no reason to be efficient, only the threat of competition can make companies more competent. Have any of these MPs ever asked the common people they supposedly represent whether they have any objections to a greater choice of insurance companies and products? Make Murli Manohar Joshi and Gurudas Dasgupta go through the entire procedure that any illiterate Indian widow goes through to get a life insurance or medical insurance claim, and then let's hear what they say.

And why should we assume—as the BJP and Left appear to—that the two Indian institutions of LIC and GIC will be in dire straits the moment private players are allowed in. Surely they can improve their efficiency? Rupert Murdoch, it is clear, will not be a match for Doordarshan for decades to come. ABB is still much smaller than BHEL. Currently, the government dictates how and where LIC and GIC should invest their money. LIC has to invest at least 75 per cent of the accretions to its Controlled Fund in Central and state government securities. For GIC, the figure is 45 per cent. This clearly is not a state of affairs that encourages initiative, innovation, efficiency. Scrap these conditions and let these two megacorps flourish, with their heads held high. And stop this practice of making a virtue of incompetence, which is basically what we are doing, whether in the case of insurance or banking or Tata-SIA, whatever the ideological masks we sew onto our motives.