SpeakIn and Indian Banks Association in partnership with Capgemini on Friday presented a captivating session with Infosys founder N.R Narayana Murthy on ‘Corporate Governance in Indian Banks’. The 30-minute session, which witnessed the attendance of top banking leadership, was presented as a part of SpeakIn’s new series titled ‘SpeakIn Expert Talk’.
Chief Executive of Indian Banks Association Mr Sunil Mehta, all praises for N.R Narayana Murthy in his opening remarks, expressed, “N R Narayana Murthy’s prominence is much echoed and vibrated in not just Indian industry but equally by the International business community. He is a man of distinct vision, fountain of illuminating ideas and an idol of knowledge, value system and inspiration to all of us.”
Introducing the idea of corporate governance, especially in Indian banks, Rajkiran Rai G., Chairman of Indian Banks Association and MD & CEO of Union Bank of India said, “When you talk of corporate governance, primarily, we are referring to the code and conduct of decision makers of a company. It is about set up systems, processes and principles, which ensure that a company is governed in the best interest of all stakeholders. It is about promoting fairness, transparency and accountability. It is about commitment to values, ethical business conduct and about making a distinction between personal and corporate funds in the management of a company. While these aspects are known to every management and firm, very few have been practicing it in letter and spirit.
Speaking about Covid-19 challenge, Mr Rajkiran added, “Last year, in particular, a challenge was posed to all good narrative of corporate world in India with several high and mighty firms and their distinguished management violating the trust of people. Unfortunately, those entrusted to keep a vigilant eye have not covered themselves in glory either. We needed to build a systemic response in terms of legal architecture and regulatory capacities. A lot has been achieved in these years, more importantly, however, we need to discover the inherent virtues of business that values ethics, honesty and integrity over any profit and loss.”
Vishal Dixit, Managing Director of Capgemini Financial Services, also shared his views and said, “Last 20 years of corporate governance in banking has changed drastically. Some names that come to mind are Lemon brothers, Enron and if you look closer to home, then Satyam. This trigged action and various committees were set up to institutionalise corporate governance and transparency framework in various parts of the world. Strong policies on corporate governance of banks are essential and critical because size and complexity of financial institutions are growing by the day and these are not checked it can have serious financial instability implications. Even after so many measures, we still have instances in the banking and financial sector, which we have recently foreseen. Clearly, people are finding loopholes in the policies. Therefore, there is a need to have continuous discussions and reviews to identify areas of improvement and immediate amendments to the policy. RBI has recently released the discussion paper in June 2020 on corporate governance banking, the need to empower board of directors and set the culture of value transparency in the organisation.”
In a conversation with SpeakIn Founder Deepshikha Kumar, Mr Murthy spoke about how organisations can improve corporate governance and the steps they need to follow to raise the bar of corporate governance. He said, “The most important initiative that we all have to take is to change the culture of the country. Unless there is a cultural transformation in India, I don’t think economic transformation will be easy to implement. I believe that the culture of a nation determines how its public institutions develop, sustain and operate. It takes long years to make the institutions strong. Even the countries where institutions are strong, one misguided individual, as we saw recently, supported by the silence of the powerful and the elite can weaken these institutions. It will take a long time to rebuild it. Countries like India, who were under the control of foreign invaders for almost 1000 years, we lost the sense of commitment to the society. This was because Indians thought that the society, or what was public, belonged to somebody who was either in Europe, or Uzbekistan or Afghanistan. Therefore, Indians focused on making their families strong and blundering commons that Indians considered as belonging to these invaders. This mindset developed over 1000 years and will take a long time to change. Therefore, wealth belonging to a corporate or deposits in a bank have been considered as a perfect gain for plundering by the rich and powerful.”
He added, “The problem of poor corporate governance steps from this mindset. The deficits in corporate governance in India stem from the primary problem of increasing agency cost and related transactions that benefit the owner managers and the professional management. This problem translates to using public resources illegally to make oneself richer. This problem will be reduced when there is a cultural transformation in India. When using public money for personal benefits will be punished heavily and when the society ostracises such offenders very severely.
Ms Deepshika further asked how do we get alignment of all stakeholders in building awareness, implementation and measuring the effectiveness of corporate governance. Moreover, what rules should we deploy to measure corporate governance. To which, Mr Murthy responded, “First of all, the best way to eliminate such deficits or reduce the number of such deficits is for a board member to ask if such an action would enhance respect for him or her in the eyes of the society. We have to accept that respect is more important than wealth and power. Second, the board members must be made to realise that they serve to enhance the interest of every shareholder and stakeholder. Today, there is a feeling among board members in India that they operate at the pleasure of either the CEO or Chairman. Ofcourse, there is also a feeling among the bureaucrats that serve the boats of public sector banks that they are not accountable to individual stakeholders, even though they may be in minority, and that they are accountable only to their bosses sitting in Delhi or the state capital. Increasing accountability to every shareholder is important. Third, Directors should not appointed by the government for listed public sector banks but they should be appointed only by shareholders through voting. These directors must be held accountable to every shareholder. Full transparency must be provided to the report of investigation of any governance problem taken by any outside agency. Fourth, the board should recuse itself and appoint a set of respected and accomplished members of the society when any member of the board or any of the CFOs is accused. Fifth, SEBI may want to mandate the trading of every incoming board member on the basics of business and governance, give them a test and then certify if they can indeed be admitted to the board. The candidates for chairmanship must undergo additional training and certification. Sixth, Boards have to conduct annual peer survey among the board members on their performance of each member of the board. The chairman generally sits with each member of the board, discusses his or her performance, suggest remedies for weaknesses and crops him or her if the performance is not improved after two examinations. The Chairman’s performance is handled by the late Independent director along with two respected and accomplished members of the society who are experts in that particular business field. Seventh, any deficits created by board members must be punished heavily by drawing back the fee received by the board member and an additional fine. In some cases, the board members may have to face criminal charges. I believe that if we implement these suggestions, there will be a deterrent for members of the board and CFOs to indulge in creating corporate governance deficits.”
Watch the entire broadcast here:
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NIA cracks whip on ISIS network in Kashmir, Al Qaeda module busted in UP
6 detained in Kashmir; high alert sounded in Uttar Pradesh after a terror plot to target the state on Independence Day was unearthed.
In a pre-dawn operation, sleuths of National Investigation Agency (NIA) along with Jammu and Kashmir Police and Central Reserve Police Force (CRPF) raided multiple locations in South Kashmir’s Anantnag district and a madrasa in downtown area of the Srinagar city. Six suspected persons have been detained by the agency for further questioning.
Sources said that an NIA team raided a Dar-ul-Uloom in Nawab Bazar area of the old city just before dawn and conducted thorough searches. Reports said that after preliminary investigation, one person who runs the madrasa was taken into custody for further questioning. His laptop and some documents too have been seized by the agency. Sources said that the said madrasa is affiliated with a Dar-ul-Uloom in Lucknow.
Simultaneous raids were conducted at many places in Anantnag district as well. The raids were conducted at several locations including Pushroo Achbal, Magray Pora Achabal, Sunsooma Achabal. While the NIA team conducted the searches, police and CRPF provided logistic support to avoid any disruption.
Searches in the case today led to recovery and seizure of a large number of incriminating documents and digital devices such as mobile phones, tablets, laptop, hard disks and T-shirts having ISIS logo.
In a statement, NIA said that Sunday’s raids in Kashmir were conducted for a case registered by NIA on 29 June 2021 under Sections 124A, 153A, &153B of IPC and Sections 17, 18, 18B, 38, 39 and 40 of the UA(P) Act 1967 in connection with the conspiracy of the ISIS to radicalise and recruit impressionable youth in India to wage jihad against the Indian state.
“In order to execute its nefarious plan, an organised campaign has been launched over cyberspace which is supplemented by on ground terror financing activities,” the statement said.
It added that “ISIS terrorists operating from various conflict zones along with ISIS cadres in India, by assuming pseudo-online identities, have created a network wherein ISIS-related propaganda material is disseminated for radicalising and recruiting members to the fold of ISIS.” It said that an India-centric online propaganda magazine the ‘Voice of Hind’ (VOH) is published on a monthly basis with the aim to incite and radicalise impressionable youth by projecting a skewed narrative of imagined injustices in India to arouse a feeling of alienation and communal hatred.
The day also saw an Al Qaeda module being busted in Uttar Pradesh, leading to an alert being issued in parts of Uttar Pradesh, including the Lucknow Commissionerate area. The terror unit had planned attacks, including suicide bombings, in crowded areas of Lucknow and other cities in the state, the police said on Sunday.
Two men from Lucknow—Minhaj Ahmed and Maseeruddin—have been arrested, leading to the discovery of the terrorist cell, the police said. “ATS (Anti-Terrorism Squad) UP has uncovered a big terror module. The team has arrested two terrorists linked with Al Qaeda’s Ansar Ghazwat-ul-Hind. Arms, explosive materials have been recovered in searches,” senior police officer Prashant Kumar said at a news conference.
“They along with their associates were planning to conduct a blast in Lucknow and surrounding areas before 15 August. Pistols, IED and huge explosives were recovered from their possession. The search operation is underway to nab their other associates” stated Kumar. “The terror activities were being run from Peshawar and Quetta on the Pakistan-Afghanistan border,” he added.
According to the Uttar Pradesh police, the terrorist module planned attacks on monuments and other public areas.
WITH AGENCY INPUTS, FROM LUCKNOW
BRICS CCI Startup series: A push to young entrepreneurs and creation of an Atmanirbhar Bharat
BRICS Chamber of Commerce & Industry in association with Start-Up India, a government of India initiative and Rising Bharat, a platform to encourage the Start up eco system in India through mentor ship and funding, organised the first BRICS CCI Startup series event. The event commenced on February 5, 2021, at the Hyatt Regency,New Delhi.
With an aim to support and encourage young entrepreneurs, the event gave an opportunity to 15 startups, to present their pitches to an esteemed jury. The brain child of the BRICS CCI Vice Chairman Mr. Sameep Shastri, the final start ups were selected from a pool of more than 250 start ups, who sent their pitches to the Chamber.
The panel of jury included Sameep Shastri (Vice Chairman, BRICS CCI), Avi Mittal, (CEO & MD, Golden Ace Ventures), Akshay Aggarwal, (Founder, Kafila Forge), Bibin Babu (Board Member, Innowork, BlocSpaze, Payiza,) Dhruv Khanna, (Co-Founder, Triton Foodworks), Pratham Mittal (Founder, Neta App), Dr. Vinay Agrawal (Chancellor, ISBM University), Ruhail Ranjan (MD, Chandrika Power) and Aditi Banerjee (Co-Founder & CEO, Magic Billion).
Dr Neha Prakash (IAS), Special Secretary, IT & Electronics, Govt. Of UP, Mr Sameep Shastri, BRICS CCI Vice Chairman, Dr BBL Madhukar, BRICS CCI DG, Mr Ashok Kumar Singh and Mr. Jitin Bhasin, CEO Savein, and Mr. Rana Sarkar joined as distinguished guests and esteemed speakers.
As part of the startup series, BRICS undertook a three-month process to identify budding startups, which had novel ideas and drive to lead a change, but required the investment, exposure and an added push for them to continue in their endeavour, lead innovations and pave the path towards Atmanirbhar Bharat.
Speaking about the vision of the program and how it gradually evolved, Sameep Shastri, Vice Chairman, BRICS CCI, told NewsX, “The initial thought-process since 2016, as our honourable prime minister has pushing towards startup, Atmanirbhar Bharat, is an ideology that we have been following. Being a young country, we have the mind; we have the jugaad, the innovating mind. It was just the right platform that was missing. What we are trying to do here is get the successfully settled young entrepreneurs who are in the top list of Forbes, they are all part of the chamber now and they are not just ready to put in the funds but mentor the upcoming innovations and startups. This is what the idea behind this is. We have tied up with one of my other initiatives, which is Rising Bharat, where we took it to tier 2 and tier 3 cities and funded more than 700 startups. I have continuously been associated with the startup community and what we have realised is mentoring is very important. Financial funding is something that everyone is able to acquire but right kind of mentorship with the right kind of team is missing. This was the gap that we identified and this is how the entire program evolved. In future, we would like to have at least four more rounds in 2021. As in, India is chairing BRICS this year so we are planning to make the best of it and give it the right platform, a global platform.”
Ms Neha Prakash, (IAS), Special Secretary, IT & Electronics, Govt. Of UP, who joined the panel as a distinguished guest, expressed, “First of all, I would like to congratulate BRICS CCI for providing us this platform to connect with the potential startups and entrepreneurs and to connect them with the potential investors. This is a very noble vision. India is very conducive to the growth of startups because of our demographic, open economic culture and the psyche of jugaad, i.e the impromptu innovation, which is deeply embedded in the Indian psyche. Because India provides this potential for the growth of startups, it is with this vision that BRICS CCI has organised this event to bring us all together and to further promote and nurture the budding entrepreneurs.”
When asked about his experience as one of the jury members, Ruhail Ranjan, MD, Chandrika Power, said, “With the vision of our honourable PM Shri Modi ji, the startups are really moving out. In 2014, the environment was not so conducive. Now, he has given us a few rules, which are very easy on startups. I am really looking forward to the next few years, which is going to a very good growth story for India. With these startups, we are really looking to handhold them and mentor them. They have good ideas but they need mentoring. When we started, we had no mentoring, nobody to go to, no knowledge about where to get money from, market was struggle. We really want them to focus on growth rather than struggle. We really want to incubate them and take them forward.”
Dr Vinay Aggarwal, Chancellor, ISBM University, further, shared, “Entrepreneurs like these are young minds. I always say that they are like damp clay. The way we shape it, the way we mentor them will help them to nurture themselves and their businesses. These people coming out of nowhere, having creative minds and beautiful ideas, can be nurtured and mentored in a way that it can grow up to a multi-billion dollar organisation. For that, we heard many pitches today and made many investment commitments. It was wonderful. The overall experience was superb. This is just the start and we will have many more events like these where young entrepreneurs can come and pitch their ideas.”
Mr. Jitin Bhasin, CEO Savein, emphasised on the need of proper mentorship to the budding entrepreneurs as equally important as fund raising. He also congratulated the Chamber for its initiative.
Aviation sector enters rough patch
Local air travel in India is likely to crash from 14 crore domestic passengers in 2019-20 to around 8-9 crore in the next financial year, says a recent report. A coordinated government and industry action is needed if the catastrophe is to be avoided.
With over 70% of the world’s fleet of 24,000 active commercial aircraft in mothballs, it is going to be a heartbreakingly costly effort to get them back in the air. Worse, each passing day only piles on more pressure and makes grounded aircraft less airworthy.
On this bleak canvas painting any scenario is predicated to the passenger mind-set and the thorough brainwashing these past few weeks that has been globally given to the potential flier that getting on a plane is not safe for Covid-19. While at-
tractive ticket costs and piled on privileges might ginger up some enthusiasm, it is not going to be easy.
In the interim as the industry trims its overheads, aircraft and carriers alike are inclined to lie down. It is a fact that half the world’s airlines in most regions only
have two to three months of cash to cover their operations. According to IATA bankruptcy has a hideous grin of anticipation writ large on its face. Granted, there is a wide variation in the fiscal strength of carriers.
The best airlines generate more profits and have stronger balance sheets than they did in the crisis of 2008, but by the same token the rest are the financial walking wounded and pull the industry back. We speak of a coordinated government and industry action that is needed — and needed now — if the catastrophe is to be avoided or at least softened in its impact. Surviving is not enough. Compromising service and safety and cutting corners are all potential recipes for disaster.
Just saying that the ATM (Air Transport Management) community needs to work together to strategies how the airline industry will restart again is also not enough. While it cannot take government fiscal injections for granted, seeking soft loans will be on the cards. Private equity will also have to be considered. It is a cruel fact but downsizing fleet and staff and even airports and assets will be necessary. There is also an official attitude issue.
Each time there is a new government recommendation it is to discourage flying. Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon. And even when the ban is lifted there could be new protocols that could make ticketing prohibitively expensive — paramount among them the safe distancing dictate that could make the load factor a parody.
The magnitude of the unfolding trauma for India’s airlines is far too severe to ignore. The “Covid-19 & the State of the Indian Aviation Industry” report, released by Capa India recently, reveals that local air travel in the country will likely crash from 14 crore domestic passengers in 2019-20 to around 8-9 crore in the next financial year (2020-21). A not so generous calculation would see the need for $2.6 billion just to jumpstart the industry in India. At least 200 of the 670-odd aircraft in the Indian commercial skies will be technically axed as schedules are truncated.
The Capa India report had some more dire predictions to make and it is necessary to confront them rather than wish them away. The most significant ones among them include:
(A) The Indian aviation sector is likely to shrink significantly, even if some of the vulnerable airlines manage to survive. The trick lies in knowing if Indian aviation has any sugar daddies who will invest in the sector knowing profit is a long time coming. An absence of liquidity is a major issue.
Ironically, IATA chief economist Brian Pierce made a projection that now sounds like a travesty: Moreover, as the world’s largest democracy with a population of more than 1.3 billion citizens, India’s potential for further growth and industry development is very clear. Indeed, we expect air passenger numbers to, from and within India, increase by 3.3-times over the next 20 years, to more than 500 million passenger journeys per year.
This significant expansion is expected to be underpinned by a trebling in the proportion of middle-class households and further increases in time-saving options for air passengers. This highlights the important role aviation can play in connecting the country — both internally and with the rest of the world.
This strong growth outlook for air passenger demand will see India overtake Germany, Japan, Spain, and the UK within the next 10 years to become the world’s third-largest air passenger market. These are exciting times for the air transport industry in India. With international traffic expected to fall from approximately 70 million in FY 2020 to 35-40 million in FY 2021, and possibly lower depending on several factors, India will lose at least 30% of its 160 million passengers, if not more.
Capa India has cautiously added that these were only initial estimates and that these would be revised as the situation becomes clearer. Consumer sentiment jolted by the virus outbreak, government curbs on air travel, and uncertainty over when they would be relaxed will severely hit airlines and allied industries. Domestic air passenger traffic is expected to drop from an estimated 140 million in FY20 to around 80-90 million in FY21.
International traffic is expected to almost halve from around 70 million in FY20 to 35-40 million in FY21, Capa India said in the report. “Indian carriers will require a domestic fleet of around 300- 325 aircraft from October 2020 onwards, and an international fleet of 100-125 aircraft,” the report said. So much for the double-digit growth.
Bigger players like Vistara, SpiceJet, Air India, GoAir, and IndiGo are staring at deteriorating balance sheets. As per the recent report by the International Air Transport Association (IATA), the Covid-19 crisis is expected to impact over
29 lakh (2,932,900 to be precise) jobs in India’s aviation sector.
That is a very large chunk of talent, expertise, and experience and will call for multi-tasking, something no airline likes to engage in. The negative impact if the ban is lifted in June on airlines’ revenue would be $11.221 billion and that is not small change. The International Air Transport Association (IATA) has released its latest forecast.
It predicts that half of all airline business will disappear this year, with full-year passenger revenues falling 55 per cent compared with 2019, with traffic falling 48 per cent. CEO Alexandre de Juniac summed it up as “catastrophic”.
Emphasising the effect on the wider economy, de Juniac said: “If airlines lose one job, another 24 disappear somewhere in the value chain. That was behind our analysis last week when we said that some 25 million jobs are at risk”.
India won’t allow commercial flights to operate until it is confident that the coronavirus outbreak is under control, Union Aviation Minister Hardeep Puri said recently. The country’s cash-strapped airlines can only stand and wait
Salon business takes a massive hit in corona times
The industry, which depends on personal touch and human interaction, is fighting for survival.
From Anushka Sharma giving a haircut to hubby Virat Kohli to Tapsee Pannu chopping off her own hair, we’ve seen several celebs indulging in DIY personal care as the entire grooming industry has been under lockdown for the past few weeks amid the rising number of coronavirus cases. And now even though the government has permitted the opening of standalone beauty parlours and salons, the industry is far from the road to recovery. The predicament of the industry lies in the deeprooted doubts prevailing in the customer’s mind regarding their own safety. “I know the next six months won’t be good for the industry. The client is scared and is apprehensive to come to the parlour or salon. We need to work on that first, we need to work on client confidence which can only happen through education. It will take a lot of time.
We all have to work on it creating trust,” says Jawed Habib, India’s salon czar and chairperson of Jawed Habib Hair & Beauty Limited. From basic grooming like a haircut and facial to botox, nail and hair extensions, the entire gamut of the grooming industry has changed drastically. The industry, which is pegged at crores of rupees, has been terribly hit due to Covid-19. The industry, which depends on personal touch and human interaction, is bracing for the aftermath of the lockdown. “I think the big challenge is what to do right now, and what we need to do when the lockdown is lifted. What our sanitisation needs will be? What will be nontouch makeovers? We need to think how we can bring digital and AI into all of this. The morale of the people is down which makes it very stressful,” says Sameer Modi, founder and MD of the popular cosmetic brand Colour Bar. With everything connected to our social media handles via technology, it’s not just the owners of these salons and companies who are feeling the lockdown blues but also make-up and beauty influencers, as the advertisements have reduced drastically on their platforms.
“Current situation is bad; the brand budgets have gone down. The budgets have been slashed as there are no delivery happening. Brands mainly want to collaborate for brand awareness to the audience. There won’t be an ROI as no purchase will be made. Some brands are doing online marketing so that the product is out there in the buyers’ mind,” says Shilini Samuel, a digital creator. Many digital influencers are, however, trying to stay positive during the pandemic by creating educational content online. “I have started doing online makeup classes and teaching makeup every day. That way I can help people with my skills and motivate them as much as I can. I keep interacting with my brands and team members to come up with solutions. Right now, we don’t know the situation we are in and we don’t know what’s going to happen, but we can try to do what’s best,” says Saachi Bhasin Daga, an online beauty influencer. With the government giving a green signal to standalone salons and parlours, the industry is slowly attempting to revive itself. The first and the foremost priority for the industry seems to be winning the trust of the customer back.
“We will have to work with less manpower and make sure they wear sanitised gear and are safe. We were also planning to hire people who come from non-contaminated zones. We have to work on our social media skills and make sure people coming to us know it’s a safe place,” says Dr Jamuna Pai, celebrity skincare and wellness expert and founder of Skinlabs Clinic. Dr. Blossom Kochar, chairperson, Blossom Kochar Group of Companies, also believes that the most important thing is to build the trust. “People do need these things and they will finally come out. But for that sanitisation and hygiene are going to be very important.” Though the hardesthit in the industry have been the small salons and barbers who had to keep the shutters down from weeks and are now seeing a drastic reduction is footfalls. “The beauty and the hair industry needs to come together. It is a huge industry in India and we can raise a lot of fund, which can go to people that cannot afford to even open their small salons,” suggests Sapna Bhavnani, a celebrity hairstylist.
Online gambling grows by leaps and bounds in locked-down India
With all of India in lockdown, online gambling has become a favourite pastime for many people. Online games are not new and many are addicted to this craze but online gambling is catching up and how! An expert estimates this new industry to be worth $150 million and growing by the minute. While online games attract 75% of mainly male youth, now the youths are turning to online gambling, like poker and rummy. The most popular gambling avenues are lottery, racing, betting, casino, rummy, and poker. It’s an addiction for those who are hooked to their screen for hours. Teen Patti, a game very popular in India, especially during Diwali, has occupied the top 10 ranks in the virtual world too. With huge demand and popularity, many gaming sites are organising annual game tournaments. Legally, only a person of age 18 or above is allowed to play or participate in online gambling with no checks and balances. As a result, many minors have fallen into this trap. With no monitoring by government agencies, these minors use fake IDs to create online accounts.
Activist S. Balakrishna said he would file a PIL in the Bombay High Court praying for a ban on all online gambling sites. He said there are several websites for poker and sports betting like Ladbrokes on which you can bet on cricket, football and other sport with impunity. Many Indian bookies are betting on these sites on behalf of thousands of benami clients and making huge profits. As for poker, rummy and other card games, many are Chinese run and huge bets are placed in the games with almost no law enforcement in this area. India has no dedicated laws or a framework to deal with legal issues of online games and gambling. Gambling comes under the states’ list with different states having different laws for it. Few states like Sikkim and Goa have allowed games of skill while other states prohibit them in all forms. This issue becomes further complicated since the Supreme Court recognised rummy as a game of skill. Though online gambling companies in India are now required to comply with multiple Central and state regulations, the companies get away with it due to loopholes.
Data suggests that 11% of global Internet traffic is of online gambling and one in 20 accounts is connected to fraudsters. According to the 276th report of the Law Commission of India, the present market for online gaming is worth $360 million which is expected to rise up to $1 billion by 2021. Supreme Court lawyer Pradeep Rai said, “Any kind of gambling, either it is offline or online, falls under the same offence similar to hate speech and hate writing. It’s an organised crime offence which has taken place. Online gambling in a state like Maharashtra is completely banned whereas a state like Sikkim allows for the sack of revenue consideration. Any game, which has a monetary part, is considering to be an offence”
More foreign investment needs less sway of domestic interest groups
The sectors which could draw in the most investments are the ones where domestic entrenched interests maintain stiff roadblocks. The insurance sector is an apt example.
On the face of it, India has begun to get lots of foreign direct investment, yet there must be concerns it is not enough. Certainly, that would seem the reason why Prime Minister Narendra Modi met his ministers and top officials of finance and commerce ministries to discuss strategies to attract more money into India. Between FY14 and FY19 India has drawn in $286 billion, a 51 per cent jump over the previous five-year period FY10 to FY14. But it is quite apparent that the government policies in India often militates against such investments. The kerfuffle about Amazon and Walmart’s investments are not the only ones. The sectors which could draw in the most investments are the ones where domestic entrenched interests maintain stiff roadblocks. Let me explain with reference to the insurance sector.
As Covid-19 has made clear, we need lots of money here. As of now foreign investment (FDI) into the sector is at less than majority control at 49 per cent, despite a budget assurance in 2018- 19 to raise it upwards. Hundred per cent FDI is only allowed for insurance intermediary companies, which means largely brokers and other mediators between the companies and the buyers of insurance. Why is this so? Insurance is a capital-intensive sector. Unlike banks where a loan can be made on the basis of the leverage of the deposits held, each policy written by an insurance company needs additional capital. This makes expansion of business in an insurance company costly. It favours those companies which have deep pockets. It is also necessary to give the insured a feeling of confidence that her risks are truly covered. The Insurance Regulatory and Development Authority of India (IRDAI) has, therefore, prescribed a stiff 150 per cent solvency ratio for insurers.
Yet, Indian insurance companies do not have the deep pockets and would rather hide behind government policies not to face competition from abroad to expand their business. This is the reason why despite the presence of 24 life insurance companies and 34 non-life companies, the needle of insurance penetration has hardly moved. In the past 16 years it rose by mere 1 percentage point from 2.7 per cent in 2001 to 3.7 per cent in 2017 (IRDAI). The companies are however doing well, except for three state-run non-life insurers. (New India, also state run, is doing well.) They have chased profitability instead of growth to compensate for their limited capital and this is the reason why all of them offer a narrow range of business with overkill in the market of motor, health and fire. In the life business, the companies have chosen to concentrate their cover on the urban salaried population, for obvious benefit of better mortality rates and the consequent scope of selling more costly products. Consequently, new-age risks are not offered since those will involve more pressure on capital. Delivery models too are not improved to make those less dependant on brokers or channel partners since there is no urgency to change these marketing strategies. State government policies are also not helpful. Those with weak finances do not want to run insurance cover for health or crops. They depend instead on models that do not draw out money from their budget.
So, there is no competition among the companies to offer cheaper products. The loser is the Indian, shorn of adequate insurance cover that the pandemic has sharply exposed them to. The prescription should thus be to allow more FDI in the sector so that management of these insurance companies passes on to well-financed companies abroad. It will also spur mergers and amalgamations in the sector, which will also yield the same beneficial result. But no domestic insurance company will ask the government to break their cosy chain. IRDAI did a survey among the companies last year and passed on its recommendations to the finance ministry.
It has not yielded results, because the lobbyists have been able to show that the jump from 26 to 49 per cent has not yielded results. In the life insurance sector, against the 49 per cent headroom of foreign investment, the aggregate foreign investment is only 35.49 per cent. For nonlife insurance, the headroom is wider. The space for foreign investment has been utilised to less than half of the permissible limit at 23.66 per cent as on March, 2019. It is a circular reasoning, though. At 40 per cent, few investors from overseas will company in. At over 51 per cent, the money will be more forthcoming. To make this change in FDI rules does not require adoption of any new strategy to bring investments into the sector. It requires paying less attention to the domestic interests which would wish to block the investments. That is only “fast-track mode” needed. Subhomoy Bhattacharjee is a senior journalist and Senior Adjunct Fellow at RIS.
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