Reforming the financial sector seems to be a top priority item on the economic agenda of the United Front government. It is well known that alongside telecommunications and energy, the Americans have long been eyeing the insurance market in India. But despite five years of neo-liberal economic reforms, the insurance sector in India still remains an exclusive government monopoly. The Common Minimum Programme of the UF government promised to end this reign of public sector hegemony. With its characteristic eloquence in the language of doublespeak, the CMP declared itself both in favour of strengthening the LIC and GIC network as well as exposing the insurance sector to private Indian and foreign penetration. Of course, the UF thinktank cannot be expected to divulge the details as to how these twin targets could be achieved simultaneously!
The first few moves in this direction have already been initiated. On 6 August the Confederation of Indian Industry hosted an international conference on insurance — "Insurance: Vision 2000" — in the capital. The finance secretary Mr. Montek Singh Ahluwalia told this global gathering that the government would finalise specific proposals regarding the opening up of the insurance sector by February 1997. In early November the LIC Board was reconstituted by packing it with a whole contingent of liberalisers. The next step in this direction would be the setting up of a so-called Insurance Regulatory Authority and a bill to this effect has been tabled in Parliament at the fag end of the winter session.
Global integration of capital, finance capital to be more specific, constitutes a crucial thrust area of the ongoing imperialist project of globalisation alongside its emphases on globalising the world trade and production. By pursuing a policy of relentless import liberalisation — only a third of our imports (in value terms) are now subject to any kind of quantitative restriction while import tariffs have been slashed to an average of 28.3%, well below the WTO requirement — the Indian market has already been made wide open to foreign goods. MNCs have been allowed to enter (and, of course, dominate) virtually every corner of the Indian economy barring only a handful of strategic sectors like defence and atomic energy. The so-called commitment made in the CMP to discourage foreign capital in low-priority areas is a pure eyewash. The parliament has been told that the government has not got any idea of drawing up a list of low-priority areas. And when the same CMP also says that the government wants to raise the annual inflow of foreign capital to a level of $10 billion, it becomes clear that wooing foreign capital itself is the highest priority, never mind the conditions and areas such capital may prefer!
Finance capital is classically construed to mean a fusion of bank capital with industrial capital. Lenin considered this finance capital a hallmark of imperialism, but in his times this coalescence of bank and industry had a definite productive thrust about it. In today’s world the fusion that is known as finance capital displays a strong speculative tendency. And it is no longer only a third worldish aberration of comprador capitalism. Speculation today reigns supreme even in the mainlands of metropolitan capital. This has lent a tremendous fluidity to finance capital and the volume of finance that is daily transacted worldwide through the intricate network of global capital is mind-boggling: $7 trillion or more than twenty-five times the Indian GDP! Behind imperialism’s predatory insistence on increasing internationalisation of the Indian capital market and financial sector lies this grand speculative design of international high finance.
The IMF-WB-WTO mafia are aware that absolute, outright privatisation of the entire banking and insurance business is not feasible or even desirable. Even in the so-called "transition economies" where far-reaching economic reforms are preceded or at any rate accompanied by sweeping political changes resulting in a thorough undermining of the economic and political sovereignty of the respective countries, the World Bank does not prescribe such an extreme course of action. What it recommends is an increasing marginalisation of the public sector in the realm of banking and insurance, confining it to the high-risk, low-profit areas of "social responsibility" and leaving the private sector free to capture the greener pastures of higher returns. This is the Fund-Bank paradigm of competitive coexistence which has been so zealously imbibed and internalised by the UF in its Common Minimum Programme!
As far as the banking industry is concerned, the UF however need not take any pioneering initiative. Reforms here have been underway for more than four years now. Moreover, despite all the euphoria about bank nationalisation in the 70s, the banking industry in India had never been closed to private Indian and foreign banks. Interestingly, wayback in June 1990, i.e., a year before India finally embarked on the full course of reforms through the July ’91 New Economic Policy, the World Bank had come out with a comprehensive prescription of reforms for the financial sector in India. The November 1991 report of the RBI-appointed Committee on the Financial System (better known as the Narasimham Committee) only echoed it more elaborately. Another committee was set up for the insurance sector under the chairmanship of former RBI governor RN Malhotra and the Malhotra Committee too duly dittoed the Fund-Bank line of exposing the insurance industry to greater competition from within and without. But while the implementation of Malhotra Committee recommendations had to wait in the face of a united and determined resistance of insurance employees, the government could have its way with the relatively less "controversial" agenda set by the Narasimham Committee.
The banking reforms have all been about enhancing the autonomy of the central bank (the RBI), deregulating the interest rate structure and lending activities of commercial banks (what in banking parlance is known as bringing about a reduction in statutory pre-emption of banks’ resources and rationalisation of interest rate structure) and ensuring greater operational freedom for private Indian and foreign banks. To force the pace of reforms and ensure easy and maximum compliance from every individual public sector bank, the Narasimham committee introduced the so-called "prudential accounting norms" according to which banks were to make parallel provision for what has come to be known as non-performing assets. Interestingly, contrary to the public perception and propaganda about NPAs arising primarily out of loans to sick industries and poor peasants, the accumulation has been mostly in the form of "bad debts" to big business houses and the kith and kin of influential political leaders (CM Ibrahim, Deve Gowda’s right-hand man in the present cabinet is reported to owe Rs. 50 lakh to a nationalised bank which he has apparently pleaded incapable of repaying and has appealed for a waiver) and funds of enormous amounts locked in all sorts of shady deals.
Through all these means, the reforms have been systematically aiming at limiting and distorting the very scope and content of public sector banking. Public sector banks are encouraged to reverse their erstwhile professed lending priorities and compete with foreign banks in quest of quick mega profits in the share market. The celebrated securities scam of the early 90s was a logical offshoot of this new ethos of public sector banking. It was patently no "systems failure", as Monmohan Singh wanted us to believe, rather it only gave us a systemic insight into the emerging shadowy world of modern competitive banking in our country.
And if the Reserve Bank’s latest Report on Trend and Progress of Banking in India is any guide, the banking reforms have already made substantial headway. According to 1994-95 performance figures, nationalised banks in India made a net profit of Rs. 269.3 crore while private foreign and Indian banks walked away with Rs. 672.1 crore and Rs. 366.6 crore respectively. In terms of operating profits, nationalised banks however still topped the list with a profit of Rs. 2,937.4 crore followed by foreign banks (Rs. 1,431.4 crore) and private Indian banks (Rs. 742.3 crore). Instead of nationalised banks proper if we look at public sector banks as a whole (including the State Bank group), the net profit at Rs. 1,115.8 crore is only marginally greater than the combined (foreign and Indian) private banks’ share of Rs. 1,038.7 crore. In terms of return on assets (ROA), foreign banks lead the pack with an ROA rate of 1.78% followed by private Indian banks (0.96%) with public sector banks notching up figures of only 0.25%, and nationalised banks finishing a poor fourth with an ROA ratio of only 0.10%.
In other words, 29 foreign banks with 156 branches and 33 private banks with 4089 branches are fast emerging as leading players in the Indian banking industry giving the 27 public sector banks with a network of 43,563 branches a close run for every rupee of bank capital in India. The orientation of private banking becomes obvious from a comparison between specialised branches of public and private sector banks. Against 69 specialised public sector bank branches dealing with agricultural finance, private sector banks had only one; with regard to SSI the corresponding figures were 164 and 17, but when it comes to catering to the banking needs and interests of the NRI population, private sector banks have a network of 15 specialised branches against 49 similar branches of public sector banks.
The RBI of course tries its best to hide or downplay the fact that lending priorities of nationalised or public sector banks are being reversed in a big way. The definition of priority sector lending itself has been substantially liberalised, all kinds of loans even remotely associated with rural areas and agriculture now pass for priority sector lending. Even then the fact remains that the proportion of priority sector lending as a share of net bank credit has come down from 37.8 to 36.6, the fall being more significant in case of direct lending to agriculture (from 13.7% to 12.3%). And between 1993 and 1995, the credit-deposit ratio of regional rural banks, the main rural credit delivery agency, has fallen from 67% to 56%.
By opening up the insurance sector for private penetration, the UF government now proposes to remodel this government monopoly on the lines of the banking industry. The official arguments are that opening up of the insurance industry would pave the way for the kind of foreign investment inflow the country allegedly needs for adequate infrastructural development. It is also said that between themselves the LIC and GIC cannot effectively tap the enormous potential of the insurance industry in India.
Both these arguments are patently false and fallacious. Insurance is not the kind of industry which needs or attracts any big amount of initial investment. Both LIC and GIC had a very modest beginning when they were nationalised in 1956 and 1973 respectively. If over the years they have grown into mega corporations by Indian standards with enormous investment in Indian private industry and paying handsome dividends to the government, the capital has been generated internally by coalescing the precious savings from millions of ordinary Indians. Foreign insurance companies are also going to do the same thing — they will not pump any mega amount of capital from abroad. Capital will be generated internally with the only difference that since they will capture the more lucrative segments of the insurance market they will make much more money and the government will have little or no control over the capital so generated and its deployment. And if LIC and GIC have not yet succeeded in exploiting the full potential of the insurance market in India, the blame must lie primarily with the Indian state and its policies and priorities. Unlike in the developed world, insurance companies here operate primarily on the strength of private savings and not of state-funded schemes of social security.
There can obviously be no "rational" case for privatisation, however partial and indirect, of the insurance industry. Even the Malhotra Committee which apparently based its recommendations on a survey done by a private opinion poll agency, MARG, on the basis of highly pro-privatisation sample, could not dismiss the LIC or GIC as an inefficient liability that the government must get rid of. The argument for opening up had to be sought in the alleged virtues of competition and in the hitherto untapped potential of the insurance market. Encouragingly enough, despite their lack of numbers — employment in the insurance industry covers only 0.05% of the economically active population in India as against 2.16% in Japan, 1.69% in the US, 1.11% in Britain, 0.88% in France, 0.80% in Germany or even 0.47% in Italy — insurance employees have so far succeeded in stalling the Malhotra Committee report in its track. But the World Bank prescription of opening up of the insurance sector has now travelled much farther. From the Malhotra Committee’s report it has come to acquire its pride of place right inside the Common Minimum Programme and has now been presented as an official bill of the 13-party UF government. The battle has obviously become more difficult now for the Left-led trade unions of insurance employees.
––Dipankar BhattacharyaHome > Liberation Main Page > Index Page January 1997 > ARTICLE