The Rediff Special / Gurudas Dasgupta

'A large part of the investible funds shall be diverted away from development and go for uneconomic transactions'

The Communist Party of India has been in the forefront of the national campaign to prevent the opening up of the insurance sector to private and foreign companies. In this extract from a recent speech in Parliament, CPI MP Gurudas Dasgupta explains why his party is opposed to reforms in the insurance business:

The opposite examples are also there. There was an unholy tie-up. Because of these unholy tie-up, the cost of insurance has immensely increased in many part of the world. Three years back, third party insurance for a car was $ 400 in the city of New York. It is now $ 900. The rate is the same for new as well as old cars. The rate of full insurance -- it is not third party insurance -- for a car is $ 3,000 in New York.

Therefore, the most important question is: Because of the induction of the foreign insurance firms, who is going to benefit and who is going to suffer? Most probably -- it is most likely -- the foreign insurance companies and the foreign financial institutions, with their massive financial resources and the tremendous political clout they are likely to enjoy in this country -- we know that political influence plays its role in our social and economic life -- would, practically, be arm-twisting our firms.

Even if they are nationalised, they would find it very difficult to sustain the uneconomic, unrealistic, unproductive and unethical competition, as a result of the induction of the foreign firms. It would be very difficult for them to maintain their commitment towards social security in the country.

It is because of the role of the foreign institutional investors that we are facing a serious debacle. We have surrendered our secondary market to the foreign institutional investors. I apprehend that in the same way the insurance sector also is going to be surrendered to the foreign insurance companies.

Cut-throat competition does not always lead to insolvency. Cut-throat competition also leads to delinquency. As a result of cut-throat competition there is a craze for higher returns, and the quest for higher returns lands the insurance companies in high-risk investments-and there is a rising wave of delinquency all over the world, particularly in the developed capitalist countries.

To give you a few examples, the Indian Parliament must also take cognisance of the findings of the parliamentary sub-committees set up by the House of Representatives in America. In 1990, a senate sub-committee submitted its report to the House of Representatives on the rising insolvency of American insurance companies.

I am quoting from a report of the House of Representatives of America and they talk of 'scandalous mismanagement and rascality of the pirates.' A sub-committee headed by Senator John de Dingell, while reviewing the work of the American insurance companies, had stated 'Annual yellow financial report booklet filed by the insurance companies with the Financial Commissioners is often a yellow peril because of dubious reliability.'

Therefore, the point is, firms having dubious reliability and scandalous mismanagement are sought to be most generously invited by the present government, closely following the footsteps of their predecessor, to take over the insurance business.

When our insurance business was nationalised in 1956 and 1971, what was its characteristic? Parliament had discussed it in detail. If you look into the deliberations, what will you come across? The characteristic of the pre-nationalised insurance business was marked by reckless competition in rates and terms, fictitious appointments, arbitrary mis-management, high-risk investments and companies functioning as outlets of funds for black and illegal business. This is the experience at home and abroad, in the United State and in India.

In that case, how does the finance minister feel so emboldened and inspired as to go out so openly and repeatedly without Parliament deliberating the same?

What is the profile of the insurance business in India? The profile of the insurance business is different, remarkably better than that of many of the counterparts elsewhere in the world. Today the total invisible funds of life insurance is Rs 750 trillion, and 75 per cent of the investible funds has been invested in government securities, in financing the state electricity boards, the state road transport corporations and housing schemes.

I apprehend, Madam, that a large part of the investible funds shall be diverted in quest of higher return and profit and shall be diverted away from development and go for uneconomic financial transactions. As a result, the country will lose.