Govt to provide level playing field in taxation of insurance companies

Govt to provide level playing field in taxation of insurance companies
ENS ECONOMIC BUREAU

NEW DELHI, NOV 22: The finance minister Yashwant Sinha said on Wednesday that the government will provide will provide a "level playing field" to public and private insurance companies in respect of tax rates.

Speaking at the Fifth Insurance Summit, organised by the Confederation of Indian Industry (CII), Sinha said "we have a committee which is working on tax rates. I would like to give an assurance of a level playing field to private and public sector companies. Whatever be the (tax) rates, it will be applicable to all of them," he stated.

Eradi Committee which is going into the issue of taxing insurance companies is expected to come out with its recommendations shortly.

Stressing that the Indian stock markets were presently dependent on a few players, Sinha said with the opening up of the insurance sector, some investments from insurance and pension funds would flow into the capital markets which would provide strength and spread to them.

Emphasising that government was committed to push up economic growth to 9 per cent annually in the coming years, Sinha said insurance and pension funds provided the answer for pushing up the investment substantially to realise the higher growth.

For this high growth there has to be a "quantum jump in savings and this can only be through the insurance sector", Sinha said adding the sector also had the potential to provide "social security" which it has not been able to do in the last 50 years.

LIC has achieved a 40 per cent growth annually mainly by tapping substantial savings available in the rural areas of the country and this has proved wrong the popular perception that rural India did not offer enough potential for growth in the insurance sector, he said.

With the opening up of the insurance sector, Sinha said he was confident that the sector which accounted for a mere 2 per cent of GDP would grow to account for 10 per cent of GDP.

The main objective of pushing growth rate to 9 per cent annually was to overcome the "scourge of poverty", Sinha said adding "this is the challenge and task before us" and opening up of the insurance sector was expected to generate fresh employment as it was a manpower based industry.

Giving statistics on what positive impact the opening up would have on the economy, Sinha said life insurance corporation business was expected to go up from Rs 350 billion at present to Rs 74 billion by 2010.

Referring to the projections of a 6 per cent growth this year, Sinha said people have become impatient and want faster growth rate.

They are no longer happy with a low 3 to 4 per cent growth, he said adding "I expect higher growth rate in the coming years."

On reforms, Sinha said it would continue and "we are committed to push forward" but at the same time "we will have to carry people along as reforms would serve no purpose if it did not impact the life of the common people.

Conveying the conviction and making reforms palatable to the people was a "major challenge", he said, adding this called for a lot of patience especially in a democracy like India.

Sinha said government had allowed 26 per cent foreign investment in the insurance sector through the automatic route to have single window clearance. The single window clearance will be given by the IRDA, he added.

No approval needed for launching and pricing products

More insurance licence by December

IRDA Chairman N Rangachary stated on Wednesday that the insurance companies are absolutely free to launch and price their products. No approval would be needed from the authority in this regard. However, the companies would need to file a profile of the products and produce a certificate from their actuary to ensure that the products are fairly priced.

Speaking at the CII summit on Insurance, Rangachary said that after doing the needful the companies can introduce the products in the market after a period of 30 days.

Rangachary also added that IRDA will grant licences to the remaining 6 applicants including Reliance Life, Bajaj Auto and Kotak Old-Mutual by the middle of December 2000.

"If there is no fresh application, we will give licences to the remaining applicants by the middle of December," he said on the sidelines of summit.

The regulator has given licences to HDFC-Standard Life, Reliance General Insurance, Royal Sundaram SunAlliance and Max-New York Life so far. It has also given "in principle" approval to ICICI-Prudential Life and IFFCO-Tokio Marine Fire Insurance.

Rangachary said IRDA has asked ICICI-Prudential to get clearance from the RBI whereas IFFCO-Tokio Marine is expected to get the licence within a couple of days.

Dismissing apprehensions that IRDA would be the back-seat driver, Rangachary said that the Indian regulator would act liberally and leave the choices to the individual companies to invest 50 per cent of funds in other areas including infrastructure, while investing the other 50 per cent in government and approved securities.

"What we would look into is that the insurer is solvent all the time. The company would be judged not by the product or the number of products but by its solvency," the IRDA chief said adding the absolute solvency margin required by the companies would be 150 per cent.

Irda also made it clear that an actuary should be a member of the Actuaries Society of India and should obtain a certificate of practice.