XI LOK SABHA DEBATES,   Session V (Monsoon) 

Wednesday, August 06, 1997/Shravana 15, 1919 (Saka)



Type of Debate: GOVERNMENT BILLS

Title:	Further discussion on the Insurance Regulatory Authority Bill,1996
moved by Shri P. Chidambaram on the 24th July, 1997.(The Bill was withdrawn)
Motion for Consideration

TEXT :
 12.18 hrs


MR. DEPUTY-SPEAKER: The Minister of Finance may reply.

THE  MINISTER  OF FINANCE (SHRI P. CHIDAMBARAM): Mr. Deputy-Speaker, Sir, I am
deeply grateful to the hon. Members who have participated in this  debate  and
who  have  made  a number of valuable suggestions. My reply will be very brief
because the purpose of this Bill is very limited.

	As you are aware, the Malhotra Committee on reforms in  the  insurance
sector gave  a  very comprehensive Report.  Insofar as it concerns the present
Bill, we are now dealing with the recommendations contained in Chapter  10  of
the Report  which  is  titled  `Regulation of Insurance Business'.  Chapter 12
deals with restructuring of the insurance industry.  There are other  chapters
dealing with  other  aspects  of  the  insurance industry.  In its Report, the
Malhotra Committee said the following on  regulation  of  insurance  business.
Now, I would like to read just a few lines:-

        
        	"Insurance is a business of large numbers and generates
        large volume of funds over a time. These funds are required  to
        be   invested   prudently   with   the   triple  objectives  of
        maximisation  of  yield,  safety  and  liquidity.  It  is  also
        necessary  that  entities  intending to take up the business of
        insurance had adequate professional  capability  and  financial
        solvency.   Insurers  everywhere  are,  therefore,  subject  to
        regulation by the  State  in  some  form  or  the  other  whose
        objective  is  that the business is run fairly and is conducted
        by competent  persons  does  not  result  in  undue  losses  to
        insurers  themselves,  resulting  in their insolvency. And last
        but  not  the  least,  protects  the  legitimate  interests  of
        insuring public.

        
        	All  regulatory  arrangements  try  to  create  systems
        whereby alarm signals are triggered in good time in respect  of
        insurance   institutions  drifting  towards  mismanagement  and
        insolvency so that timely, corrective steps could be applied. "

	Then, after tracing the history of regulation  of  insurance  in  this
country,  referring to the Indian Life Insurance Act of 1912, Insurance Act of

1938, creation of the office of Controller of  Insurance  and  then,  how  the
office was diminished, the report concludes:

        
        "  The Controller office started shrinking in all respects. The
        Controller  and  Assistant  Controller  are  now  part  of  the
        Insurance Division of the Ministry of Finance and perform a few
        residual  functions under law which are not of much importance.
        These developments have also created some functional anomalies.
        The powers and position of the  Controller  of  Insurance  have
        undergone  a  drastic  curtailment after nationalisation of the
        insurance  industry.  There  are,  however,  operations   which
        require  professional  regulations  even  in  the  nationalised
        insurance sector, particularly in areas relating  to  expenses,
        customer's  service,  claim settlement, resolution of disputes,
        reasonableness of tariff and  prevention  of  restricted  trade
        practices.

        
        	Having regard to both the present and future scenarios,
        the  Committee is of the view that the office of the Controller
        of Insurance should be restored its full statutory  powers  and
        segregated  from  the  Ministry of Finance, as a matter of high
        priority. In due course, the insurance regulatory authority  be
        set  up  as  a  multi-member  statutory  body  similar  to  the
        Securities and Exchange Board of India.

        
        	IRA should have a full-time chairman. IRA  should  have
        full  functional autonomy, operational flexibility to discharge
        its functions in a free and fair manner."

	What we  are  doing  in  this  Bill  is  simply  to  make  the  IRA  a
multi-member  statutory  body.  There is no other purpose behind this Bill. No
other purpose is sought to be achieved through this Bill. In  fact,  no  other
purpose  can  be achieved through this Bill. There are some good provisions of
the Bill which apparently have not been noticed very keenly.

	Firstly, clause 13 (1) of the Bill says:

        
        "Subject to the provisions of this Act and any  other  law  for
        the  time  being in force, the Authority shall have the duty to
        regulate, promote and ensure orderly growth  of  the  insurance
        business."

	This  Act  is, therefore, subject to any other law. This is reinforced
by clause 26 which says:

        
        "The provisions of this Act shall be in addition to, and not in
        derogation of, the provisions of any other  law  for  the  time
        being in force."

So,  clause  13 read with clause 26 of this Bill make it absolutely clear that
this law is not in derogation of any other law. If there is any other  law  on
insurance, that law will continue to prevail.

	I would invite the attention of the House to two crucial provisions in
the last two Acts. One is Section 30 of the LIC Act that reads:

        
        "Except to the extent  otherwise  provided  in  this  Act,  the
        Corporation  shall  have the exclusive privilege of carrying on
        life insurance business in India."

	No attempt is being made to touch or change Section 30 of the LIC Act.
Similarly, Section 24 of the GIC Act says:

        
        "Except to the extent provided in this Act, the Corporation and
        the  acquiring  companies shall have the exclusive privilege of
        carrying on general insurance business in India."

	No  attempt is being made through this Bill to touch or change Section
24 of the GIC Act. Therefore, this Bill does not in any  way  override  either
Section  24  of  the  GIC  Act  or  Section  30 of the LIC Act. Therefore, any
apprehensions in that behalf, I would say, with great respect, are misplaced.

DR.  MURLI  MANOHAR  JOSHI  :    Why were 46 MOUs signed between the different
companies?

SHRI P.  CHIDAMBARAM:  Let me complete, Sir.  I am aware of the point raised.

	Therefore, some apprehensions expressed -- that  decisions  have  been
taken  to  privatise  LIC  or  GIC or decisions have been taken to open up the
entire sector to private insurers, domestic or foreign -- are in my respectful
submission, misplaced, premature and do not arise while this  House  considers
this Bill.

	I  would,  therefore, make it very clear that the purpose of this Bill
being only to set up a regulatory authority, the merits and demerits  of  this
Bill  must  be  debated  having regard to that purpose and this Bill should be
voted having regard to that purpose.

	I, Sir, am a Minister of a Coalition Government which is bound by  the
Common Minimum  Programme.    I  have no hesitation in declaring that it is my
duty to implement the Common Minimum Programme.  The Common Minimum  Programme
clearly stated that the insurance business will be restructured; that there is
a place both for the public sector and the private sector; that the experience
of  the banking industry will be applied to the restructuring of the insurance
business; and that LIC and GIC will continue to remain in  the  public  sector
and will be strengthened...  (Interruptions)

DR.  MURLI MANOHAR JOSHI :  Does Shri Nirmal Kanti Chatterjee agree with this?

SHRI E.   AHAMED  (MANJERI):    Restructuring  can  also be put in the private
sector!

SHRI P.  CHIDAMBARAM:  In implementing the Common Minimum Programme,  I  have,
from time  to  time,  made  some  announcements.  One announcement I made very
early in the life of this Government is that we will bring a Bill to make  the
nonstatutory IRA  a  multi-member  statutory body.  It is that promise that is
being implemented through this Bill.

	However, I would like to draw the attention of this House to the  fact
that  in  the Budget Speech on the 28th of February this year, I did, with the
consent of my Cabinet colleagues, announce the Government's  Policy  that  the
insurance industry would be restructured.

	Let me  make  two  things  clear,  Sir.    I  can do nothing without a
consensus within the Government and I can do nothing without  the  consent  of
this House.    It  is my intention to restructure the insurance business and I
have outlined, what restructuring will take place, in the Budget Speech.    It
is hardly  necessary  for  me  to  recall every aspect of that.  But I wish to
point out that some important announcements were  made  and  I  believe,  this
House  in the sense that it did not move or pass a cut motion and in the sense
that this House approved the Appropriation Bill and the Finance  Bill  broadly
supporting the direction of restructuring.

	It  is  quite possible that individual Members have reservations about
restructuring of the insurance business, but as one is committed  to  reforms,
as  the  Government  is committed to reforms, I would be less than truthful to
myself if I say that the insurance business does not require restructuring  or
that it should stop or pause or turn back.

SHRI B.K.  GADHVI(BANASKANTHA):  Sir, may I have one clarification?

SHRI P.  CHIDAMBARAM:  Let me finish.

MR.  DEPUTY-SPEAKER :  Let him complete his reply, you can ask later on.

SHRI B.K.  GADHVI:  Is the hon.  Minister afraid of yielding?

SHRI P.   CHIDAMBARAM:   No, I only do not want to be interrupted in the chain
of thoughts.  The hon.  Member can speak again.  I will yield after  a  little
while.

	Therefore,  while  carrying through these reforms, I will always do so
after building a consensus within  the  Government  and  after  obtaining  the
consent of this House.

	If there is no consensus  within  the  Government  on  any  particular
decision,  I  cannot take a step forward. If I do not have the consent of this
House, I cannot take a step forward. The outline is clear  and  that  requires
that  insurance  business  must  be restructured. How it will be done, when it
will be done will depend upon Government decisions taken from  time  to  time,
the  Bills  moved  in  this House from time to time and winning the support of
this House from time to time.

	Today, to apprehend issues which do not arise in this  Bill,  I  would
humbly submit, is premature and I would like to allay those apprehensions.

	I would urge the hon. Members once again to read paragraphs 47  to  52
of  my  Budget  speech  which  outlines  the  policies of the Government. If I
continue to have the support of this House, we will implement  those  policies
from  time to time after securing the consent of this House and after bringing
appropriate Bills in that behalf. For the time being, all that we are doing is
to implement a commitment  made  long  ago  by  the  previous  Government  and
reiterated  by  the present Government that the Insurance Regulatory Authority
will be made into a statutory Regulatory Authority and the  reasons  for  that
are spelt out very clearly in the Malhotra Committee Report.

	Sir, the policy of allowing foreign insurers to open  liaison  offices
goes back  to the previous Government.  They have been allowed to open liaison
offices.  I answered a question in this House that we have continued with that
policy.  They are not allowed to do any commercial business.    They  are  not
allowed to raise any funds.  They have been allowed to open liaison offices in
order  to  be  a  channel  of communication between India and their respective
countries.  That policy goes back to 1995 and we have continued  that  policy.
But,  as  I said, none of them has been allowed to do any commercial business;
none of them will be allowed to do any commercial business; and none of  them,
in  fact,  can  be allowed to do any commercial business as long as Parliament
stands by the laws that are already made.

	I have invited your attention to Section 24 of  of  the  GIC  Act  and
Section 30 of the LIC Act.  The two provisions are very clear.

12.33 hrs	(Mr.  Speaker in the Chair)

	In my Budget speech, I proposed, I underline the word `proposed', that
the  health  insurance business should be modestly opened by allowing selected
Indian companies to come into the health  insurance  business.    I  have  not
proposed opening  of  the  life  insurance  business.  I have not proposed the
general opening of the  general  insurance  business.    I  have  proposed,  I
underline  the  word  `proposed',  to  this  House  that  the health insurance
business may be opened up by allowing a few selected Indian companies to  come
into the  business but I cannot do that unless I have your consent.  I cannot,
by an Executive Order, allow any Indian company to come even into  the  health
insurance business.    I  need the consent of this House because Section 24 of
the GIC Act and Section 30 of the LIC Act  confers  the  monopoly  of  general
insurance and life insurance respectively on these two Corporations.  If there
is  a  Cabinet  decision, I will come back to this House and seek your consent
and at that time, surely the House will decide.  I am not so  dim  as  not  to
take note  of  the  views  of this House.  There is the Left which opposes any
kind of opening to the private sector.  There is the Congress which cautiously
supports an opening.  There is the BJP  which  supports  an  opening  only  to
Indian players.    I  am not so dim as not to be aware of these three separate
positions.  Therefore, with these three positions staring in  my  face,  if  I
want  to  carry  on  the business of managing the finances of this country and
reforming, I must come back to you again  and  again  and  again  and  try  to
convince you ...(Interruptions)

SHRI MULLAPPALLY  RAMACHANDRAN  (CANNANOR):  What about the stand of the Tamil
Manila Congress?  ...(Interruptions)

SHRI P.   CHIDAMBARAM:    I  must come back to you again and again and ask for
your consent (Interruptions);without the consent nothing can be done.

	My friend asked me as to what the stand of the Tamil  Manila  Congress
is.   The  Tamil  Manila  Congress  is  a  Party born in fire and committed to
reform.  (Interruptions).  We are reformers (Interruptions).

SHRI MULLAPPALLY RAMACHANDRAN :  Please do that.

SHRI P.  CHIDAMBARAM:  I am a reformer, but I cannot reform without consensus.
I cannot  reform  without consent.  The consensus is something which has to be
built here; consent is something I will have to secure here.  I  am  aware  of
that.  We are  a parliamentary democracy.  I do not have a personal agenda.  I
have a goal.  I have a vision and each one  of  us  shares  a  vision.    Shri
Vajpayee,  when  he  was  the Prime Minister, spelt out a vision; the Congress
spelt out a vision.  I have a vision, but  I  cannot  carry  out  this  vision
unless  I  have a consensus among my friends or the consent of each section of
this House.

	Sir, at an appropriate time, when the Government takes a decision,  if
the  Government takes a decision about what further reforms are required to be
done, I will come back to this House.  But, for the present, let  me  make  it
absolutely  clear  that  all  that  we  are  doing  is  to  make the Insurance
Regulatory Authority a multi-member statutory body.

	I  would  most  humbly appeal to this House to join me in passing this
Bill and putting in place  a  multi-member  statutory  body  to  regulate  the
insurance business.

JUSTICE GUMAN MAL LODHA (PALI): Can the hon. Minister explain what the concept
of restructuring and reform is which he is committed to and the Common Minimum
Programme  is  committed  to?  Is it opening to the foreign companies? He said
that his Party was committed to and he would do it at some  appropriate  time.
He  may please spell out whether his reform and restructuring of the insurance
business contemplate opening of the insurance to the foreign companies and  if
not he may kindly also tell us why he has allowed...(Interruptions).

SHRI P. CHIDAMBARAM: I have already answered this question.

JUSTICE GUMAN MAL LODHA :  Why were these 46 companies which  are  dealing  in
insurance allowed?  (Interruptions).

MR. SPEAKER: You cannot restart the debate.

			... (Interruptions)

JUSTICE GUMAN  MAL  LODHA  :   Sir when we wanted to speak in between, he said
that when he sits down, then we can ask.  When we ask him now, he says that he
cannot reply.  (Interruptions).

MR. SPEAKER: The Minister is coming back to the House again and again.

			... (Interruptions)

JUSTICE GUMAN MAL LODHA :  He has to spell it out.

MR. SPEAKER: I think, you have made your point.

			... (Interruptions)

JUSTICE GUMAN MAL LODHA :  Sir, let me complete the sentence.    What  is  the
M.O.U.   which  has been entered by Tatas and by other companies with these 46
companies?  Would the Minister kindly put those M.O.Us.  on the Table  of  the
House or spell out whether insurance was included in that or not?

SHRI  BASU  DEB ACHARIA (BANKURA): Since the hon. Minister has stated that the
intention of this Bill is not to open the insurance sector to the private  and
multinational  foreign  companies  for  the present, not at this point of time
never (Interruptions)....

MR. SPEAKER: You go ahead with what you understood.

			... (Interruptions)

SHRI BASU  DEB  ACHARIA  :   There is no difficulty in accepting the amendment
tabled by Shri Nirmal Kanti Chatterjee.  The hon.   Minister  can  accept  the
amendment  that  no  foreign  and  Indian  private  company  be allowed in the
insurance sector.  He can assure that.  (Interruptions).

MR. SPEAKER: Do you have any differences with Shri Basu Deb Acharia?



SHRI  NIRMAL  KANTI  CHATTERJEE  (DUMDUM): No, Sir. But in terms of arguments,
yes.

	I perfectly appreciate the very democratic parliamentary stance of the
Minister  of Finance. Who will not accept sitting here? The point is initially
in the Draft Bill, there was a specific mention that this  is  the  Regulatory
Authority to control companies including private companies. It is my amendment
in the Committee which deleted the word `private'.

	Now, the misfortune of the English  language  in  that  dictionary  of
words  which  hon. Jaswant Singh can understand, is that by deleting this word
`private', it has become more generous. The intention originally was that this
Bill itself provides for future liberalisation of Section 24 of  the  LIC  Act
and Section 26 of the GIC Act. That was the intention ... (Interruptions)

AN HON. MEMBER:  Section 30.

SHRI NIRMAL KANTI CHATTERJEE :  All right.  Section 30.

	Sir,  yesterday  we  argued  that per se strengthening of GIC, LIC and
public sector would be weakened by opening it up to the  private  sector.  The
private  sector  demolishes  itself  in  this  sector - I am not talking about
direct investment in the physical goods sector. In this sector the  confidence
can be so sapped by the activities of the private sector that that will injure
the  insurance  climate  of  the  country  and,  therefore,  the public sector
insurance companies also. That we argued, but to that, he  is  not  responding
because  he  is taking a stance that we are doing nothing else but providing a
Regulatory Authority. We do not want him  to  come  back  again  and  again...
(Interruptions)




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