• Understanding Money Matters and Getting Started http://bit.ly/33vBEI #

Powered by Twitter Tools.

Understanding Money Matters and Getting Started http://bit.ly/33vBEI

At a time when the government is struggling hard to hike the foreign direct investment cap to 49 per cent in insurance, the Economic Survey called for raising the limit on foreign equity to 100 per cent in specialised segments like health and weather insurance.

“Raise foreign equity share in insurance to 49 per cent. In addition, consider allowing 100 per cent foreign equity in a special category of insurance companies that provide all types of insurance (health, weather) to rural residents and for all agriculture-related activities including ago-processing,” the survey said.

This may help dispel fears of foreign equity in insurance, it added. The government earlier had proposed raising foreign direct investment cap in its budget in 2004-05. However, opposition from Left parties eluded consensus on the issue.

Rise in insurers

However, the survey noted that since the opening up, the number of participants in the sector has gone up from six in 2000 to 44 insurers operating in the life, non-life and reinsurance segments as in March 2009.

Of the 22 life insurers, as many as 19 are in joint ventures with foreign partners, the survey said, adding, that of the 15 new private insurer in the general insurance 14 are in joint venture with the foreign partners. In all, it said, there are 33 insurance firms having collaboration with established foreign insurance companies as at end-March 2009.

Foreign partners

Besides, two standalone health insurance companies have been set up with joint venture foreign partners, it said.

With the growth in the sector, life insurance density (ratio of premium underwritten in a year to the total population) increased to US$40.4 in 2007 against US$33.2 in the previous year.

In case of general insurance, the density was, however, lower at US$6.2 in 2007 against US$ 5.2 in 2006. Citing recent initiatives to develop insurance sector, the survey said, Insurance Regulatory & Development Authority in 2008-09 issued instruction on the interpretation of pre-existing condition in health insurance, which came into effect from June 1, 2008.

The standardisation of terminology would help the insured by increasing clarity and ensure comparability of health insurance products across insurers, it said.

Metlife India Insurance Managing Director Rajesh Relan said, “we would expect the Centre to continue with the financial reforms to further liberalise the insurance sector.”

Laying the road map ahead of the Budget, the Economic Survey today sought sweeping financial reforms, an ambitious disinvestment programme, free pricing for fuel and fertiliser, opening railways to private sector and liberalising FDI in defence, retail and insurance areas.

Stating that the worst of the global meltdown was behind, the Survey said a growth of up to 7.5 per cent was possible during the current fiscal but cautioned that financial investors could be manipulating global oil and commodity prices.

Asking the government to divest up to 10 per cent equity in all unlisted PSUs with an annual disinvestment target of Rs 25,000 crore, the Survey also recommended auctioning of all unviable PSUs.

Though there are indications that the economy may have weathered the worst of the downturn, it cautioned that the situation needed “close watch on various economic indicators, including impact of the economic stimulus and developments taking place in the international economy.”

Giving a snapshot of the economy during 2008-09, the Survey said the Indian economy has shock absorbers that will facilitate early revival of the growth, adding that banks were financially sound and forex reserves and debt position was within the comfort zone.

The fallout of the global economic crisis on the Indian economy had been palpable in the industry and trade sectors and had also permeated the services sector, the Survey said, pointing that the wide-ranging challenges included enhancement of physical infrastructure and productivity in farm sector.

The Survey also sought reduced role for government and end of state monopoly in areas like railways, coal and nuclear power while seeking up to 49 per cent FDI in defence and insurance.

Besides, it added, the government should also develop a policy response system and financial buffer for use when oil prices rise above $80 per barrel in the global market.

Making a case for private sector’s entry into the coal sector, the survey said that the nationalised coal sector is a major roadblock in the steady growth of power sector.

As long as the coal sector remains a public sector monopoly, it could remain a bottle neck for accelerated development of the power sector, said the Economic Survey 2008-09 tabled in the Parliament.

The Survey also prescribed reforms in the subsidy regime in oil, food and fertiliser sectors and asked the government to review the possibility of direct cash transfer to the targeted people.

The survey further said the government should reform petroleum, fertiliser and food subsidies to reduce leakages and ensure targeting in order to provide benefit to the needy.

The need for greater insurance penetration in both the life and non-life segments has been underscored by the economic survey. The survey points out insurance penetration in the country remains significantly lower than its Asian peers.

However, it has mentioned that though comparatively low, penetration has incre-ased significantly since the opening up of the sector for private players. This increase due to entry of new players, introduction of new products and channels of distribution and increasing penetration of private insurance companies in uncovered markets.

Life insurance penetration increased from 1.77 per cent in fiscal 2000 to 4.10 per cent in FY07 and it declined slightly to four per cent in FY08.

The per the provisional figures provided by Life Insurance Council, the life insurance penetration in FY09 was 4.30 per cent.

General insurance penetration in 2000 was 0.55 per cent of GDP which went up to 0.60 per cent in 2006 and remained same in 2007. Insurance penetration is defined as the ratio of premium underwritten in a given year to GDP.

The survey has also called for greater reforms in the pension sector and has argued that this will not only help in facilitating the flow of long-term savings for investments and funds for infrastructure development, but would also help the government to fund its pension liabilities.