Foreigners eye India bonanza

Business Asia, August 2, 1999

Foreign insurers have waited patiently for the doors to India's state-controlled industry to open, but too long a delay could see their enthusiasm wither and damage investor perceptions of broader economic reforms.

Insurance is seen by foreign investors as a litmus test of India's commitment to economic reforms that began in 1991. It remains the only sector isolated from the wave of deregulation and liberalisation.

Delays might annoy insurers, but more importantly they will prevent the vital injection of billions of dollars desperately needed to boost India's creaking infrastructure.

"There is no loss of patience at this moment as the serious players are looking at India as part of their overall strategic plans," said Naren N. Joshi, chief adviser at lNG Insurance.

"As of now I don't think we have lost out, but too much delay can have its own implication." Official estimates say India needs US$50 billion of funds to boost creaking infrastructure, bottlenecks in which are a key factor holding up rapid economic expansion.

Fast growth in the insurance sector could generate US$20 billion over the next 10 years and meet 40 per cent of funds required to boost the nation's infrastructure.

India's insurance business is currently worth US$6.6 billion, or about 0.31 per cent of the global total. Penetration, as a percentage of gross domestic product (GDP), is 2 per cent.

An annual 15 per cent growth in premiums could see penetration at 4 per cent of GDP and net premium income of some US$26 billion.

Industry officials say India, with a population of 975 million people, is not investing enough in the insurance sector.

They say lack of competition and low income levels -- one in three Indians are estimated to live below the poverty line -- restrict the industry's growth.

Officials hope liberalisation of the industry would lead to greater coverage, a better dispute settlement mechanism, improved quality of service and security of investment from private firms.

The sheer scale of funds needed for investment is reason enough for officials to be concerned about the domestic consequences of a failure to open the market.

- Reuters