India Public Affairs Round-Up
 

India Public Affairs Round-Up

on

  • 169 views

After the bruising general election, India’s new government got down to the business of preparing the Union Budget. Much is expected of the Narendra Modi regime, which projected a pro-business, ...

After the bruising general election, India’s new government got down to the business of preparing the Union Budget. Much is expected of the Narendra Modi regime, which projected a pro-business, pro-reform image throughout the campaign.

While reactions to the Budget were mixed, it did include two important policy changes. Foreign direct investment norms for insurance and defence manufacturing were changed to attract more foreign players. Both sectors have been touchy topics, with battlelines drawn between those for liberalised investment norms and those in favour of a more conservative approach.

Whatever the merits of each argument, it’s clear that a long, hard road lies ahead on the economic front and these are the first steps of a fledgling government of which much is expected. There will be other, tougher decisions to make – reducing subsidies, a simpler tax regime that protects states’ interests and a land acquisition policy that will spur industrial growth while conserving land-owners’ interests, to name just a few.

With this edition, MSLGROUP’s Public Affairs Round-up takes on a new look and structure too. Now onwards, PAR will be a quarterly. It will have more detailed analyses and content than its earlier avatar, and will incorporate commentary and data that is more relevant to you.

MSLGROUP’s insights team will play the role of an observer of the Indian economic and policy environment, and will provide analyses that we hope will benefit you and your business. As always, we look forward to your feedback.

Statistics

Views

Total Views
169
Views on SlideShare
169
Embed Views
0

Actions

Likes
1
Downloads
0
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

India Public Affairs Round-Up India Public Affairs Round-Up Document Transcript

  • inside 03 How FDI will impact India’s insurance sector 07 India’s big move 05 September 2014 | Vol 2 | Issue 3 on defence 09 Back of the Book 1 Public A Round-up FDI 49% Insurance Defence A paradigm shift In insurance?
  • Viewpoint The new new thing It seems like a time for new beginnings. After a bruising election fought in the heat and dust of the Indian summer, a new government headed by Narendra Modi was sworn in. The scale of victory was new too – a clear majority, which the lower house of Parliament has not witnessed for a generation. The huge number of first-time voters enrolled – 120 million – was a first too, and their new way of thinking and expectations played a role in the end result. It seems only right, then, for MSLGROUP’s Public Affairs Round-up (PAR) to evolve a new look and structure too. This edition onwards, PAR will be a quarterly. It will have more detailed analyses and content than its earlier avatar, and will incorporate commentary and data that is more relevant to you. In this edition, we look at the far-reaching implications of the change in foreign direct investment (FDI) norms for insurance and defence manufacturing. Both sectors have been touchy topics, with battlelines drawn between those for liberalised investment norms and those in favour of a more conservative approach. In both cases, critics have alleged a danger to India’s interests – especially in the defence sector. Those who disagree with them point out that India’s massive defence imports are a drag on the economy and leave the country dependent on foreign players. There are enough safeguards, they say, built into the law to keep unscrupulous players at bay and to ensure national security. Whatever the merits of each argument, it’s clear that a long, hard road lies ahead on the economic front and these are the first steps of a fledgling government of which much is expected. There will be other, tougher decisions to make – reducing subsidies, a simpler tax regime that protects states’ interests and a land acquisition policy that will spur industrial growth while conserving land-owners’ interests, to name just a few. MSLGROUP’s insights team will play the role of an observer of the Indian economic and policy environment, and will provide analyses that we hope will benefit you and your business. As always, we look forward to your feedback. Ashraf Engineer, Vice-President – Content & Insights, MSLGROUP, India ashraf.engineer@mslgroup.com MSLGROUP is Publicis Groupe’s strategic communications and engagement company. We advise clients on all aspects of their multi-stakeholder communication strategies. Our 100+ offices span 22 countries today. Add our affiliates into the equation, and our reach expands to 46 countries. MSLGROUP India is the nation’s largest PR and Social Media network. Comprising two leading brands–MSL INDIA and 20:20 MSL–MSLGROUP India combined includes 14 offices across 8 key-cities, 550+ professionals partnering with 220+ clients, national and global. 2 Public A Round-up
  • Focus How FDI will impact India’s insurance sector Nirav Khatri, manager – research and insights, MSLGROUP in India One of the biggest challenges before the insurance sector is that it deals in products that rely on ‘push’ rather than ‘pull’. Insurers are engaged in a constant struggle to make products meaningful to customers. The sluggish economy and slow policy movement of the past few years haven’t helped matters and incremental asset creation has taken a backseat. As per Insurance Regulatory and Development Authority (IRDA) figures, life insurance premium income for FY 2012-13 remained flat at Rs 2,87,202 crore ($52.78 billion) over FY 2011-12, whereas non-life insurance recorded 19.10% growth in premiums to Rs 62,972.8 ($11.57 billion) crore from Rs 52,875.80 crore ($10.33 billion) during the same period. India is a price-sensitive market and growing competition has pushed premium rates down, compelling insurance companies to work on marginal expense ratios. The extent of development – or the lack of it – in Indian insurance is clear from the measure of penetration and density. A study by Swiss Re, a reinsurance company based in Zurich, said the estimated Insurance penetration level (life and non-life) in India was 3.9% in 2013 – abysmally lower than most other Asian countries. Even the density level – at $52 (Rs 2,829) – is very low. (Insurance density level is measured as the ratio of insurance premium – in dollars – to total population. It indicates the average per capita spend on insurance.) Therefore, there was much at stake for insurance in the Union Budget 2014-15. To pump life into the sector, Finance Minister Arun Jaitley proposed to raise the foreign direct investment (FDI) limit in insurance to 49% from the current cap of 26%. It came with a predictable rider – management and control remaining with the Indian partner. Also, the additional Rs 50,000 rise in exemption limit for income-tax for individuals would channelise more household savings into life insurance premium. Photo by veooz.com As per Insurance Regulatory and Development Authority (IRDA) figures, life insurance premium income for FY 2012-13 remained flat at Rs 2,87,202 crore ($52.78 billion) over FY 2011-12, whereas non-life insurance recorded 19.10% growth in premiums to Rs 62,972.8 ($11.57 billion) crore from Rs 52,875.80 crore ($10.33 billion) during the same period. 3 Public A Round-up
  • Welcome move The Insurance Laws (Amendment) Bill is in a state of logjam and needs to be passed by the Rajya Sabha. At the time of writing, it was approved by the Cabinet and is expected to be taken up soon. Indian insurance firms, strapped for capital, have applauded the move for incremental FDI. An additional benefit is that the insurance regulator will be empowered to set more rules and impose larger penalties – a strong deterrent to mis-selling. Deepak Mittal, MD and CEO of Edelweiss Tokio Life Insurance, told ‘Business Today’ magazine: “Increasing the limit promises immediate FDI inflow. However, for greater impact, the increase in the cap should not have had riders attached.” A ‘Times of India report’ said that as much as Rs 120,000 crore ($20 billion) in FDI for insurance could flow into India over the next three to five years. Scotland’s Standard Life, France’s AXA Group and Allianz, UK’s Lombard and Italy’s Generali are among the players eyeing India. The global advantage The collaborative efforts of foreign partnerships will result in product innovation, improved distribution through the leveraging of technology and it will augment operational efficiency to improve penetration and density levels. Foreign capital brings with it strategic expertise gained from global experiences. For Indian players, this is necessary to scale up the business through technology initiatives and client servicing tools. Product innovation is critical to improve customer acquisition by developing distinguishing and sustainable propositions. Differentiation is necessary to ensure effective customer value proposition. Globally, insurers have designed innovative products for different demographics, including ‘pay as you drive’ for motor insurance and ‘co-payment claim products’ for health insurance. ‘Pay-as you-drive’ premiums are aligned with driving behaviour using mobile-based telematics applications installed inside the car recording real-time data, and are a huge success abroad. Through their expertise, foreign players can design niche insurance products catering to an array of segments in India. One of the most significant aspects of raising the FDI limit is that it will facilitate fresh investment to leverage new technology to improve distribution through new delivery channels. The internet is changing buying patterns across the entire purchase cycle for policy holders. A joint study by global management consulting firm Boston Consulting Group (BCG) and Google India revealed that as many three-fourths of policies sold by 2020 would be influenced by digital channels. 4 Public A Round-up
  • Speaking to ‘The Economic Times’, Alpesh Shah, senior partner and director at BCG India, said: “Digital adoption could result in potential savings of 15%-20% of total costs in the case of life insurance and 20%-30% in the case of non-life.” UK’s motor insurance industry is an example of how the internet can transform the sector as the share of premiums accounted for by online sales rise. Innovations in distribution also make insurance viable for the low-income segment, which is currently under served. It’s a matter of time before breakthroughs in technology will enable buyers to access all their insurance requirements through remote digital devices. Technology first It is absolutely necessary to optimise business operations to stay competitive and increase efficiency, especially when the macro environment is challenging. It’s important for the industry to invest not just in expansion and distribution, but also in client servicing and processing. Total premiums Markets like India need holistic and sustainable solutions that are customer-driven, end-to-end and support innovation. Automating insurance processing claims can result in substantial cost savings as it is labour-intensive. Insurers can also embrace the use of smart cards for enrollments, paperless insurance policies and straight-through underwriting processes to streamline operations to serve low-income customers and improve bottomlines. Finally, these activities should be well supported by analytical tools that enable measurement of outcomes. According to a study by Gartner, Indian insurance companies will spend Rs 12,100 crore on IT products and services in 2014, an increase of 12% over 2013. Derry Finkeldey, principal analyst at Gartner, was quoted in its press release as saying: “Insurers in India are getting serious about their core insurance processes, especially where they help increase insurer penetration of the market.” With this major reform, the stage is set for a paradigm shift in insurance. It’s up to the industry now to respond. Year Life (Rs crore) Growth (%) Non-life (Rs crore) Growth (%) 2008-09 221,785.47 10.15 30,351.83 9.08 2009-10 265,447.25 19.69 34,620.45 14.06 2010-11 291,638.64 9.87 42,576.47 22.98 2011-12 287,072.11 -1.57% 52,875.80 24.19 2012-13 287,202.49 0.05 62,972.80 19.10 Source: IRDA Annual Report Segmentation Category Premiums (Rs crore) Share (%) Life 287,202.49 82.02 Fire 6,658.91 1.90 Marine 3,029.15 0.87 Health 13,974.67 3.99 Motor 29,629.80 8.46 Others 9,680.29 2.76 Total 350,175.31 100 Source: IRDA Annual Report 5 Public A Round-up
  • A paradigm shift In insurance? FDI cap hiked from 26% to 49% Management control with Indian partner Regulator to be more powerful; focus on mis-selling What the new rules say Implications of FDI Insurance penetration What this means Rs 120,000 crore ($20 billion) may flow into the country as FDI in insurance over 3 to 5 years Considerable political opposition to the move. That will take some dealing with Innovative, niche products for consumers Firms' premium incomes will rise New technology paradigm that will change the way consumers are sold to and serviced Low-income segments will be reached out to Greater insurance penetration Foreign cos eyeing larger indian pie Country Total (%) Life (%) Non-life (%) Taiwan 17.6 14.5 3.1 Hong Kong+ 13.2 11.7 1.5 South Korea ** 11.9 7.5 4.4 Japan** 11.1 8.8 2.3 Singapore ** 5.9 4.4 1.6 Thailand ** 5.5 3.8 1.7 Malaysia ** 4.8 3.2 1.7 India * 3.9 3.1 0.8 China + 3 1.6 1.4 Insurance Density Insurance Density (in US $) - Asia (2013) + provisional *Estimated **Estimated US value Source Swiss Re, Sigma 3/2014 Country Total Life Non-life Taiwan 3,886 3,204 682 Hong Kong+ 5,002 4,445 557 South Korea ** 2,895 1,816 1,079 Japan** 4,207 3,346 861 Singapore ** 3,251 2,388 863 Thailand ** 310 214 96 Malaysia ** 518 341 176 India * 52 41 11 China + 201 110 91 + provisional *Estimated **Estimated US value. (Insurance density level is measured as the ratio of insurance premium – in dollars – to total population. It indicates the average per capita spend on insurance.) 6 Public A Round-up
  • Viewfinder India’s big move on defence India – the world’s largest arms importer – spent close to $6 billion (Rs 36,000 crore) on weapons imports last year. Before the Union Budget 2014-15, The Narendra Modi government announced its intention to modernise the Soviet-era weaponry – Russia is a major supplier – by liberalising the defence sector through the foreign direct investment (FDI) route. The objective, clearly, is to scale up India’s domestic defence manufacturing base and increase preparedness, especially at a time when China has bolstered its military efforts by pursuing its ‘string of pearls strategy’ to encircle India. India has allowed 26% FDI in defence projects since 2001, without committing to technology transfer. This kept away many overseas investors. Since then, India has had negligible FDI in defence. In his maiden Budget speech, Finance Minister Arun Jaitley raised the composite cap from the earlier 26% to 49% with full Indian management and control through the Foreign Investment Promotion Board route. The new limit approved by the Cabinet provides a greater incentive for licensed manufacturing, but is not high enough for overseas investors to get managerial control over elements such as intellectual property. Though the industry lauded the policy, there needs to be greater clarity on technology transfer. Critics said that no foreign investor would part with closely-guarded technology unless there is adequate control over the enterprise and an assurance of sufficient autonomy with regards to capacity enhancement and access to markets. Only then would the investment be viable. While the FDI limit would be automatically agreed to if it is within 49%, it is the government’s policy to allow a higher limit – even up to 100% – provided state-of-the-art technology transfer is offered. The proposals would be considered on a case-to-case basis. Security analysts have raised concerns over managerial control by overseas partners if their investment exceeds 49%. Some have demanded that India reserve the right to take over a facility during operational emergencies. Most nations include such an enabling provision. Further, India can incorporate security clauses in the licence to ensure against unscrupulous entrepreneurs. Rakesh Sood, a former ambassador and the prime minister’s special envoy for disarmament and non-proliferation till May 2014, told ‘The Hindu’ newspaper: “Merely liberalising FDI will not help. What is needed is an Photo by plus.google.com 7 Public A Round-up
  • appreciation of the characteristics of the defence industry and coordination among the multiple stakeholders who drive, and have often distorted the decision-making process.” Speaking to ‘The Economic Times’, Baba Kalyani, CMD of Bharat Forge, said: “The finance minister’s intent to reduce reliance on imports and streamline defence procurement systems is very positive.” FDI in defence: pros and cons Less reliance on foreign suppliers Savings on foreign exchange Boost for Indian industry, economy Significant foreign investment Greater self-reliance makes geo-strategic sense Pros Defence allocation Besides, indigenous facilities provide self-reliance and a degree of assurance that imports don’t. Additionally, indigenous manufacturing provides better life-cycle support – including, critically, supply of spares. It is important too that the armed forces, the ultimate consumers of these goods, be allowed to share their views during policy-making. Cons Without managerial control, investors would be wary Unclear guarantees on intellectual property safeguards Tremendous political opposition Risk of unscrupulous players and damage to India's security set-up Capital outlay 2014-15 (Interim Budget) 89,587.95 2014-15 (Union Budget) 94,587 All figures in Rs crore. Source: India Today Budgetary Allocation 2013-14 203,672 2014-15 (Interim Budget) 224,000 Defence budgets (2013) 2014-15 (Union Budget) 229,000 2013-14 86,740 119.5 69.5 56.9 39.2 US China Russia Japan India Source: India Today 613.9 Outlay (in $ billion) 8 Public A Round-up
  • Back of the Book Rs 39,00,000 crore ($650 billion) Targeted size of the textile and apparel industry by 2024-25 as per a draft policy termed ‘Vision, Strategy and Action Plan’ for textiles and apparels 7.5 crore Number of new bank accounts the Indian government hopes to enable by August 15, 2018, according to a draft financial inclusion plan 200 Number of low-cost airports India plans to build in the next 20 years to connect tiers 2 and 3 cities 65 Percentage of freight volume in India that moves on roads at an average speed of 30-40 kmh 8,500 km Extensions of national highways proposed to be completed by 2014-15 22% Statutory liquidity ratio for banks after it was lowered by half a percentage point. The reduction in SLR will free up about Rs 40,000 crore ($6.5 billion) in the banking system Rs 12,000 crore ($2 billion) Proposed investment by American e-commerce giant Amazon in India 100% Foreign direct investment in railway infrastructure projects permitted by the Union Cabinet 43,00,000 Number of claims settled by retirement fund manager Employees Provident Fund Organisation since April 2014. It also updated 92% of the annual accounts due for 2013-14. This has happened for the first time in the past 30 years Rs 297,000 crore ($49.5 billion) India’s fiscal deficit for the first quarter of 2014-15 – that is, 56.1% of the full-year target 34.35% Improvement in total employment during the last eight years to 12.77 crore, as per the Sixth Economic Census-2013 Twitter board The Bad Doctor @doctoratlarge In what way will FDI in defense constitute a security risk, when all our weapons are made abroad, anyway? Sanjay Jha @JhaSanjay This BJP government is funny; they want FDI in strategic Indian assets like Railways and Defense, but want to skip multi-brand retail. SonaliRanade @sonaliranade Paradox is that those who don’t wanna give us technology want 100% FDI in Defense. & we are offering 100% FDI b/c we want the technology. Manish Tewari @ManishTewari Opposed to raising the FDI in insurance for ten long years BJP does the mother of U turns & declares black money can not be brought back! Shahnawaz Hussain @ShahnawazBJP Union cabinet proposes to raise FDI cap in Insurance frm 26% to 49%. Good decision that will provide a boost to overall financial sector. 9 Public A Round-up View Summary View Summary View Summary View Summary View Summary
  • For more information on What MSLGROUP in INDIA has to offer your company, please contact our India CEO JAIDEEP SHERGILL jaideep.shergill@mslgroup.com