Monday, January 5, 2015

Will the ‘Ordinance-2014’ passage to the Insurance Laws (Amendment) Bill-2008 yield Business?

The federal NDA government, based on a cabinet decision passed an Ordinance clearing the Insurance Laws (Amendment) Bill (ILAB) with an enhanced FDI share of 49% heralding the beginning of second and third generation reforms India. This bill originally drafted by the UPA in 2008 and cabinet approved with 49 % FDI in 2011 itself; yet  UPA could not get its passage through the bi-cameral chambers of Indian Parliament. The bill was also opposed vehemently by Communist leaning parties, the BJP and NDA partners.

The Politics of Insurance Bill
Passing Ordinances strategically is not new; the UPA got the ‘food security bill’ through this process in 2012. The NDA’s current move of strategically getting ILAB through Ordinance announces a pro-business and pro-FDI stance; while UPA and other opposition parties made the normal passage difficult due to political logjam.

The NDA could not place this bill for a vote and process in the Rajya Sabha because of a lack of ‘quid-pro-quo’ that is common during political engagements. The opposition was united in blocking the passage of Insurance bill because the Prime Minster during the recent weeks did not recognize the hotly contentious issue of religious conversions which is hurting the very foundation of the Constitution and secular ethos of India. Whether such a quid-pro-quo and role reversal is fair in political decision-making is a moot point; but what was real was the inability of the passage of a landmark and path breaking piece of legislation. For Mr. Modi, it was essential that a positive investment friendly gesture was made before the visit of President Obama to New Delhi in late January 2015.

The Modi government, a day after Rajya Sabha went to recess, passed an ‘Ordinance’ to bring to life the ILAB. The Ordinance is a temporary arrangement as contained in article-123 of the constitution. “If at any time, except when both Houses of Parliament are in session,  the President is satisfied that circumstances exist which render it  necessary for him to take immediate action, he may promulgate such  Ordinance as the circumstances appear to him to require". The Ordinance thus promulgated carries the same force and effect as an Act of Parliament. However, the Ordinance has to be laid before both House of Parliament and it will cease to operate at the expiration of six weeks from the reassemble of Parliament. Once the ordinance is laid in Parliament, the government introduces a Bill addressing the same issue. This Bill is supposed to highlight the reasons that necessitated the issue of the Ordinance. Thereafter, the Bill follows the regular law making process.

Will the ILAB pass through the regular law making processes?  The Finance Minister of India Sri. Arun Jetli stated that “the country cannot wait even if one of the Houses of Parliament waits indefinitely" (Economic Times 24th December 2015).  This is a statement of power and statesmanship, yet it generated strong sense of uncertainty. There is an indication that the Modi government will be ready should that becomes essential to summon a ‘joint parliamentary session’ to press for the passage of the ILAB along with a few other bills.  

The BJP along with its NDA partners is placed well with assured support of 49.7 per cent of the MPs. It would not be difficult to win over the support of 3-4 more MPs from other parties to get the bill passed during the joint session. There could be a possibility, however, of opposition to this bill from within the NDA and also many from within the BJP itself. That is a real and serious danger in summoning the joint parliamentary session to pass the ILAB. Note also that so far in the history of Independent India only three bills namely, the Dowry Prohibition Act - 1961, the Banking Commission Repeal Bill - 1978 and the Prevention of Terrorism Act - 2002 have in passed at the joint sessions. 

The Economics of Insurance Bill:
The insurance sector could become an assured source of capital for development projects that have long gestation such as building road and rail networks, irrigation projects and so on. In the industrialized economies practically all workers maintain documented payment and savings plans including insurance schemes, but insurance penetration is merger in India.

 The penetration of both life and non-life insurance is low. The latter has many components such as crop insurance, health insurance, insuring small and micro-businesses and so on. Data base on the current status of insurance is also week, although Insurance Regulatory and Development Authority maintain rudimentary information and not in public domain. The total insurance sector business was about $64.5 billion during 2011, covering just about 10 percent (200 million insured persons) of total workforce mostly employed in government and organised private sectors. According to Indian Brand Equity Foundation, the government claims that 25 million farmers (out 120 million) are insured, but this amounts to only 4.5% of the total non-life insurance market. Further only 124 million policies were in operation under the health insurance in 2013.

The ILAB-2008 with enhanced share of upto 49 percent for the international investors will attract higher FDI and FIIs. This would also facilitate the re-insurance companies located in the UK and other European nations. The ILAB will also attract attention of new investors especially from the USA. The bill will provide a formidable competition to the hitherto monopolistic government controlled companies and will force them to reform. A direct result of this bill would be fresh investments in health insurance; the consumers will be exposed to a range of innovative products and services hitherto not know to them.

Although there is still uncertainty whether theILB-2008 will be passed by Rajya Sabha during the budget session in early 2015; what is important is to appreciate NDA government for bringing this Ordinance. Will this policy reform generate international investments is difficult to answer since most of the international investors have already announced their desire to wait until the Bill is passed through the regular parliamentary procedures.

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