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The Case for Increasing FDI Caps in Insurance


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The Case for Increasing FDI Caps in Insurance
The history of India’s political economy is replete with missed opportunities. The approach to growth and investment has been often stranded in the many romantic notions of selfreliance and what constitutes national interest. In every
decade since Independence, the approach to foreign direct investment has been influenced by a mistrust triggered by a colonial hangover. Every time India has opened its doors – or windows if you please – to foreign investment, it has been characterised by gradualism in the wake of much opposition. The debates around opening or expanding FDI are similar – as it was when telecom or banking opened up for foreign investment. What is important to recognise is that every such initiative has been beneficial, delivering greater common good.

Higher economic growth is driven by competition and consumer choice. Competition drives efficiency and efficiency drives growth. This is true of every country that has done well economically. It is also true of India since 1991, in segments where competition has been introduced. Any attempt to artificially introduce protection always has costs. Inefficient producers are protected, but at the expense of consumers. Consumers suffer from higher prices,bad service and limited choice. This is straightforward under-graduate economic theory. The gains to inefficient producers are more than neutralized by losses to consumers, leading to an overall deadweight welfare loss to the country.

In this argument, the colour of the competition, whether it is domestic or foreign, does not matter. In addition, there is the macroeconomic argument about a current account deficit having to be met through capital account inflows and non-debt-creating FDI inflows are preferable to debt-creating capital inflows. While these broad arguments about competition and FDI are accepted, the question to ask is, why should the insurance sector not be subject to these compelling arguments? Is there anything special about insurance that rational arguments should not be applied to
this sector? In every sector where India has opened up to FDI, be it manufacturing or be it services, two propositions are empirically evident. First, liberalization helps consumers. Second, fears about inefficient producers being eliminated are also vastly exaggerated.

Instead, producers of goods and services adapt and survive, based on access to capital, technology, knowhow, improved management practices and customer orientation. Therefore, protection not only harms the cause of consumers, it also harms the cause of producers. There is no reason why insurance should be treated differently. And economic logic and rationale should not be conditional on whether one is within the government or is in opposition.

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The Case for Increasing FDI Caps in Insurance

  1. 1. The Case for Increasing FDI Caps in Insurance Bibek Debroy & Shankkar Aiyar January 2013 Indicus White Paper Series
  2. 2. White Paper onThe Case for IncreasingFDI Caps in Insurance Bibek Debroy & Shankkar Aiyar Indicus Analytics January 2013
  3. 3. Table of ContentsSection 1: Introduction ....................................................................................................3Section 2: The Present Poor Penetration and Density of Insurance........................5Section 3: The Financial Inclusion Agenda.................................................................17Section 4: Additional Positive Externalities of Liberalization.....................................25Section 5: The Half-Hearted Liberalization................................................................36Section 6: The Half-Half-Hearted Liberalization Proposal ....................................45
  4. 4. Section 1: IntroductionT he history of India’s political economy is replete with missed opportunities. The ap- proach to growth and investment has beenoften stranded in the many romantic notions of self-reliance and what constitutes national interest. In everydecade since Independence, the approach to foreigndirect investment has been influenced by a mistrusttriggered by a colonial hangover. Every time Indiahas opened its doors – or windows if you please – toforeign investment, it has been characterised by grad-ualism in the wake of much opposition. The debatesaround opening or expanding FDI are similar – as itwas when telecom or banking opened up for foreigninvestment. What is important to recognise is that ev-ery such initiative has been beneficial, delivering great-er common good.Higher economic growth is driven by competition andconsumer choice. Competition drives efficiency andefficiency drives growth. This is true of every coun-try that has done well economically. It is also true ofIndia since 1991, in segments where competition hasbeen introduced. Any attempt to artificially introduceprotection always has costs. Inefficient producers areIndicus White Paper Series Page 2 of  58
  5. 5. protected, but at the expense of consumers. Consum-ers suffer from higher prices, bad service and limitedchoice. This is straightforward under-graduate eco-nomic theory. The gains to inefficient producers aremore than neutralized by losses to consumers, lead-ing to an overall deadweight welfare loss to the coun-try. In this argument, the colour of the competition,whether it is domestic or foreign, does not matter. Inaddition, there is the macroeconomic argument abouta current account deficit having to be met throughcapital account inflows and non-debt-creating FDIinflows are preferable to debt-creating capital inflows.While these broad arguments about competition andFDI are accepted, the question to ask is, why shouldthe insurance sector not be subject to these compel-ling arguments? Is there anything special about insur-ance that rational arguments should not be applied tothis sector? In every sector where India has openedup to FDI, be it manufacturing or be it services, twopropositions are empirically evident. First, liberaliza-tion helps consumers. Second, fears about inefficientproducers being eliminated are also vastly exaggerated.Instead, producers of goods and services adapt andsurvive, based on access to capital, technology, know-how, improved management practices and customerorientation. Therefore, protection not only harms theIndicus White Paper Series Page 3 of  58
  6. 6. cause of consumers, it also harms the cause of pro-ducers. There is no reason why insurance should betreated differently. And economic logic and rationaleshould not be conditional on whether one is within thegovernment or is in opposition.Indicus White Paper Series Page 4 of  58
  7. 7. Section 2: The Present Poor Penetration and Den-sity of InsuranceIn 2013, the Indian economy is expected to touch $ 2trillion in GDP. Yet for the size of the economy andits potential, India has an abysmal level of insurancepenetration and density. Total penetration at 5.1 percent is less than world average of 6.9 per cent. Re-member India is currently among the top ten econo-mies in nominal GDP and fourth largest in terms ofpurchasing power parity. But in terms of penetration,it is ranked lower than South Africa and Taiwan. TheWorld Economic Forum Financial Development Re-port 2012 ranks India 17th of 62 nations surveyed inlife insurance penetration, 52nd in non-life insurancepenetration and 50th in real growth of direct insur-ance premium – well below its potential and far belowsmaller economies.If one splits the penetration into segments of life andnon-life the performance of “Life” at 4.4 per centlooks good. But one must remember that this is aneconomy with virtually no social security coverageand no pension benefits for those outside the organ-ised sector. A 2008 survey by the National Council forApplied Economic Research with Max New York LifeIndicus White Paper Series Page 5 of  58
  8. 8. shows that while 78 per cent of the people were awareof life insurance ownership of products was only 24per cent. To get a perspective of the scale of uncov-ered population, one must remember that less 11 percent of the total workforce is part of the organisedsector. The Economic Survey puts the total workforcein the organised sector at 28.7 million. The unorgan-ised sector or the informal economy accounts for over90 per cent of workforce and about 50 per cent of thenational product. Graph 1 Life Insurance Penetration in India 1999-2010 (Premiums in % of GDP) 5.0 4.4 4.6 4.4 4.2 3.9 4.0 2.59 2.6 2.8 3.0 2.5 2.2 1.8 2.0 1.4 1.0 0.0 1998 2000 2002 2004 2006 2008 2010 2012Secondly, much of the life insurance penetration isdriven by the salaried and the self-employed, who areinfluenced to a large extent by tax incentives offeredin return for investment in insurance. As India delib-erates on the necessary tax reforms and works out itsapproach for a new Direct Tax Code, there is the likeli-hood of many exemptions being weeded out and manymade taxable. The levels of penetration in “Life” areIndicus White Paper Series Page 6 of  58
  9. 9. relative to tax benefits and one cannot presume the lev-els will automatically continue.The penetration levels are worse in the Non-Life seg-ment. India is estimated to have the third largest clus-ter of micro, small and medium enterprises numberingover 26 million units. India is also home to over 15million small retail outlets. Yet insurance penetrationis a measly 0.7 per cent. India does barely better thanPakistan and Bangladesh and ranks lower than Sri Lan-ka and Malaysia and worse than its peers in the BRICsgroup – that is Brazil, China and Russia.Only 0.2 per cent of the population is estimated tobe covered by medical insurance. The Planning Com-mission estimates that nearly 300 million people inIndia have health cover, but these are those coveredby central government and employees’ state insuranceschemes. In a population of 1210 million, barely 55million are reported to have paid for private healthinsurance. More importantly, the present structure ofhealth insurance covers only hospitalisation and outof pocket expenses are borne by individuals, trigger-ing spasms of downward mobility for the families ofthose affected by any critical illness.The National Sample Survey data show that educa-tion and health are increasingly being privatized, andIndicus White Paper Series Page 7 of  58
  10. 10. even among the poor, medical expenses account foran increasing share of private expenditure. Since thatprivatization of health and education will continue inthe process of reforms, medical insurance coverageneeds to increase, not only to cover hospitalization, butout-patient treatment too.Poor penetration of insurance is accompanied by lowdensity – measured in US dollars. This is best illustrat-ed by the absolute numbers in insurance spend acrosssectors in India. Currently, the density of insurance inIndia is US $ 64.4. That is almost one-tenth of theworld average of $ 627.3. India does poorly even incomparison to its peers in the BRIC nations – densityin Brazil is over five times at $ 327.6, over four times inRussia at $ 296.8 and three times that of India in Chinawhich has a density of $ 158.4.Again, when the overall density is spliced for segments,the picture worsens. Its performance in Life segment isat $ 55.7 which is low when put in context of nationswith and without social security. Total premium col-lected is around Rs 3 trillion. In Non-Life, the numbersare absolutely shocking. The GDP of India is expectedto touch Rs 101 trillion this year. Contrast this withthe total premium collected for non-life coverage: Rs43,841 crore for the last year. At a density of $ 8.7 –Indicus White Paper Series Page 8 of  58
  11. 11. compare to $ 52.9 for China - clearly the economy isunder insured, leaving the political economy vulnera-ble to shocks.Government spending on public health is abysmal andnearly 80 per cent of health expenditure is borne byprivate pockets. A World Bank study states that barely7 of 100 Indians are currently buying health insurance.This cannot endure as health care costs rise. An inclu-sive health care system calls for wider insurance cover-age so that risks can be pooled to bring down healthcare costs. It is well known that a single health crisis ina family can transport the household into poverty. Thiscan only be mitigated through insurance cover.The reality of the health care structure is that over 80per cent of doctors, 49 per cent of the beds, 60 percent of the in-patient care and 78 per cent of the am-bulatory services are private. There is no running awayfrom the fact that the government will have to part-ner with the private sector. Private providers runningsmall family clinics and hospitals and hospices run bycharitable institutions are a dominant feature of theIndia health care apparatus. Also, government spon-sored health insurance schemes are enrolling privateproviders for in-patient care these need to be expandedto accommodate ambulatory care, which accounts forIndicus White Paper Series Page 9 of  58
  12. 12. two thirds of the critical Out-of-Pocket expenses.With barely 9 hospital beds per 10,000 people vis-a-visthe WHO norm of 30 per thousand, India is grosslyunderequipped in terms of capacity to provide health-care. The investment for this cannot come withoutactive participation of health care insurance. Indiahas had health care since 1950s, when the employeesstate insurance scheme was launched, followed by thecentral government health scheme. But the expansionof health care outside the ambit of organised sectoremployment has been poor. If at all there has beenan effort, it is in the creation of policy for those liv-ing below the poverty line but creation of policy hasnot been matched by provision of facilities. Averagehospitalisation costs are rising and spending on publichealth, which is barely over one per cent of GDP, hasbeen precluded by resource scarcity.Globally across income strata, it is well established thatuniversal health care can only come in with a mix ofprivate funded insurance driven by tax incentives andgovernment funded schemes. A number of developingcountries like Argentina, Brazil, South Africa, Kenya,South Korea, Iraq, Iran, Thailand and Sri Lanka haveevolved single-payer mechanisms to facilitate near uni-versal access to healthcare.Indicus White Paper Series Page 10 of  58
  13. 13. India has the opportunity to innovate and create thenecessary capacity for universal health-care through anappropriately priced model of insurance that involvesprivate service providers partnering the government.Insurance creates the necessary mechanism to balancethe supply of and demand for health-care. But for this,larger capital investment is a pre-requisite and the gov-ernment must enable its infusion.The usual approach to addressing health problems isone of increasing public expenditure on health, the ar-gument being that out-of-pocket (OOP) expenditureon health-care is too high. “Those who access ‘free’government health services are expected to purchasemedicines from private pharmacies; pay user fees forlaboratory tests and of course the ubiquitous infor-mal fees. Those who use the private services of coursehave to pay considerable amounts. Significantly, thosewho are insured also do not get full protection. Whiletheir OOP payments are reduced, they still have topay for ambulatory care and for excluded conditions.”While this is true, this seems to be more of an insur-ance issue, rather than one of increasing public expen-diture on health to the oft-cited figure of 3% of GDP.There have been government-sponsored health insur-ance schemes, like the Rashtriya Swasthya Bima Yoja-na (RSBY). RSBY was launched in 2007 and providesIndicus White Paper Series Page 11 of  58
  14. 14. coverage of Rs 30,000 per household per year to unor-ganised sector BPL families. 75% of the premium ofRs 750 per family is paid by the Centre and the remain-der 25% by States. State governments also have theirown insurance schemes - Arogyasri Yojana (AndhraPradesh), Kalainger Insurance Scheme for Life-Savingtreatments (Tamil Nadu), Suvarna Arogya SurakhsaScheme (Karnataka) and Mukhya Mantri BPL JeevanRakhsa Kosh (Rajasthan) are examples. Despite this,insurance markets are not open enough and risk-pool-ing is still limited. That’s the primary reason why OOPexpenditures are still so high.Let’s now turn to the agriculture sector. Agriculture isIndia’s largest private sector in terms of employmentaccounting for nearly 60 per cent of the working popu-lation, or six of ten working Indians. Nearly two-thirdsof these have little or no access to credit and barely afraction of them have engaged in crop insurance.Crop insurance was first introduced in the eighties bythe government of India and General Insurance Cor-poration was the first company tasked with the imple-mentation of the idea. Sometime in 2003, the Agricul-ture Insurance Company was given the responsibilityof implementing the idea of agricultural insurance. Inthe years since the expansion of crop insurance, thisIndicus White Paper Series Page 12 of  58
  15. 15. government-led initiative has led to the coverage ofnearly 10 million hectares and over eight million farm-ers. That the government’s initiative has managed tototally cover only 180 million farmers in ten years re-flects the chasm between need and capacity.Typically, crop insurance coverage has followed thosewho have access to bank credit. The wide gap can beassessed from the details: India has 182 million hect-ares of cultivable land, of which, the net sown areais 140 million hectares, while total cropped area (in-cluding multiple crops) is 193 million hectares. Nearlyhalf the cropped area is rain-fed or dependent on thevagaries of the weather. As against this, in 2011-2012,total coverage of crop insurance has been barely 10million hectares.The government has many schemes, including weath-er-based-crop insurance, modified national insurancescheme, bio-fuel tree insurance, cardamom plant andyield insurance, coconut palm insurance, potato cropinsurance, pulpwood tree insurance, rain-fall insurancefor coffee growers, rubber plantation insurance andweather insurance. However, these have yet to reachthe critical mass and that would require both expan-sions in capacity and competition. The fact that theturnover of the AIC has shot up by seven times fromIndicus White Paper Series Page 13 of  58
  16. 16. Rs 369 crore to Rs 2577 crore and net worth has in-creased eight times to Rs 1596 crore in March 2012shows the demand for such insurance and the scopefor expansion.Indian agriculture suffers from poor returns and vi-ability at the best of times. Ground conditions aredifficult, input costs are rising and yield per hectareis poor when compared to global agri producers. Asagriculture adopts more modern practices and as theground conditions – particularly water – worsen, theneed for insurance and the variety of insurance willonly expand. The capacity expansion required cannotbe sustained by government companies alone and willrequire private insurer participation.The expansion of insurance will not only make new in-novations available – and these can be mandated in theguidelines – but also bring in its wake substantial ex-tension advisory services to enable farmers to improveyield as also to shift to demand-led cropping patterns.These forward and backward linkages in methods ofcropping, in nurture, in choice of timing and of cropsas also new technology will help farmers align outputto market demands – particularly in price sensitive do-main like spices and horticulture where risks are high-er. With the onset of new investment in large retailIndicus White Paper Series Page 14 of  58
  17. 17. and processing this will be a major enabler. Agricultureaccounts for less than a sixth of the national GDP andis host to six of ten working persons. Insurance is oneenabler that will help lift the mass from depravationthrough induction of technological assistance that willfollow coverage.To this litany of problems, let us add a quote fromthe recently-finalized 12th Plan (2012-17) document.“Insurance premia account for less than 1 per cent ofGDP, which is only about a third of the internationalaverage. The organised financial sector does not reachout to large segments of the population which are ser-viced if at all by all manner of informal financial en-tities at terms and costs that retard their growth pros-pects....Lack of insurance products is an example ofunder-supply of financial services. It can be nobody’scase that the Indian economy has lower inherent risksthan others, or that life cover is any less important. Itis rather that costs of providing cover and assessingclaims are currently so high relative to the cover itselfthat either premium-to-cover ratios become exorbitantor appropriate insurance products are simply not creat-ed. High transactions costs relative to size of accountsare also the main reason for low banking coverage andthis is compounded by high risk perception of banks,in part because of lack of insurance. Agriculture andIndicus White Paper Series Page 15 of  58
  18. 18. other forms of MSMEs are particularly ill-served andthe situation has in fact deteriorated in some ways overthe last two decades because of problems afflicting thecooperative banking sector.”This should establish the case that the present state ofinsurance and insurance coverage is hardly satisfactory.The question is, what does one do about it?Indicus White Paper Series Page 16 of  58
  19. 19. Section 3: The Financial Inclusion Agenda Since the quote from the 12th Plan document men-tions financial inclusion, let us talk about that now.Among the many challenges India must resolve, is oneof financial inclusion. India has shockingly low levelsof financial inclusion. World Bank studies rank Indiapoorly on many indices of financial inclusion. Only 35per cent of Indians have a bank account versus theglobal average of 50 per cent and lower than the av-erage of 41 per cent in other developing economies.More important, just 12 per cent have been found sav-ing.Economists Robert G King and Ross Levine had inthe nineties examined the premise of Schumpeter thatfinancial system can promote economic growth. Usingdata for 20 years across 80 countries the duo estab-lished that various measures of the level of financialdevelopment are strongly associated with real per capitaGDP growth, capital accumulation and improvementin efficiency with which capital is employed. They alsoargued that “predetermined component of financialdevelopment is robustly correlated with future rates ofeconomic growth.The World Economic Forum Report on Financial De-velopment 2012 ranks India 46th out of 62 countriesIndicus White Paper Series Page 17 of  58
  20. 20. surveyed on market penetration of bank accounts, 36thon bank branches, 34th on financial system deposits toGDP, 43rd on the ratio of private credit to GDP, 35thon bank deposits to GDP. In terms of overall financialdevelopment it ranks 40th in 62 nations.A more developed financial system naturally results ina higher level of financial inclusion. Access to banking,availability of credit, affordability and access to insur-ance are among the many factors that enable the dis-advantaged to harvest opportunities. Without inclusivesystems the poor are forced to dip into their futurewealth or savings for education, health care or entre-preneurial ventures. The persistence of poor financialinclusion contributes to not just poorer growth but isaccompanied by inequality.In a country with over 900 million mobile subscrib-ers India has 624 million savings bank accounts (RBI2011). If we de-dupe the data for two or three accountsper person the picture of access to banking could bequite stark. What is more interesting is that in 2011 In-dia had 121 million ‘borrowal’ accounts. Nearly 60 percent of the work force is employed in agriculture andtwo thirds of them do not have access to bank credit.While there is a lot of talk about financial inclusion,the focus is on opening new bank accounts, no frillIndicus White Paper Series Page 18 of  58
  21. 21. accounts – of which 50 million have been opened be-tween 2010 and 2012 -- and using banking correspon-dents and micro-finance institutions. This is welcome.But this doesn’t address the issue of whether the poormake use of these bank accounts. More important-ly, the entire focus of financial inclusion is on credit.There are few other financial products worth the name.Especially for the poor, it is difficult to segregate cred-it from insurance. Many poor people are pushed be-low the poverty line because of exogenous shocks andmedical contingencies are a major reason for this.Contrary to perceptions, those left without access oroutside the ambit of financial inclusion are not finan-cially illiterate. And this has been well established incontemporary literature (Portfolios of the Poor/ Col-lins and others) Indeed quite to the contrary. Eventhose who live at below poverty levels are not knownto spend every rupee they earn. They do manage evenif not successfully -- to save at home, to become partof community savings mandals, join neighbourhoodkitty clubs, lend to moneylenders et al. These and oth-ers need to be offered access to the multiple instru-ments and enable them a shot at a better quality oflife. The imperative for using more than just banks topush financial inclusion has never been more clear andcritical.Indicus White Paper Series Page 19 of  58
  22. 22. In 2002, the Insurance Regulatory and DevelopmentAuthority mandated that all insurers doing business inIndia had to provide insurance to rural and social sec-tors. This legislation and later amendments was to tar-get the lowest income groups and bring them into thefold of coverage and expand financial inclusion. Com-panies are obliged to bring 7 per cent of the new lifeinsurance policies – rising to 20 per cent in ten years– from rural areas and face sanctions for not meetingquotasInterestingly, because the legislation mandates partici-pation by all insurers there has been a lot of innovationand experimentation with products and distributionchannels. The 14 private life insurers have developed28 new micro insurance products and are trying a va-riety of distribution chains such as micro finance insti-tutions, self-help groups and NGOs.Over 2.4 million low-income clients were given cov-er by private sector life insurers since the introductionof Micro Insurance Regulations by IRDA in 2005. Incompliance with IRDA Regulations, in 2010-11, all ex-cept one of the private players fulfilled, and in manycases exceeded, their rural sector obligations while allof them fulfilled their social sector obligations througha range of schemes targeted at the lower income seg-Indicus White Paper Series Page 20 of  58
  23. 23. ment of the population.While there is a debate on about whether these are real-ly the targeted low income group, fact is that a fractionof the adult populace is covered by micro insurancewhereas the total market just for the lowest incomepopulace is estimated to be around 400 million. It iswell recognised that at the lowest income levels anyillness, loss of livelihood or life could send the fami-ly into absolute penury. The NCAER New York MaxLife survey found that a large majority of Indians – 81per cent – do not and are unable to save for the longterm and only 4 per cent of the households surveyedstated they could survive for more than one year afterthe loss of primary household income.The vulnerable need coverage and cannot be coveredwithout expansion of coverage and that necessarilymeans higher capital investment. Since micro insur-ance and social products and low ticket in nature thecompanies would take longer to break even and there-fore may not be able to invest beyond a factor withoutbreaching solvency norms. Higher FDI will definitelyenable infusion of capital and expansion.Often the debate on risk mitigation for entrepreneursis mistaken as an instrument for large enterprises andentrepreneurs. Fact is the need for risk mitigation is farIndicus White Paper Series Page 21 of  58
  24. 24. more vital for micro, small and medium scale enter-prises which account for a large percentage of employ-ment in industry and trade. MSMEs account for eightper cent of the GDP and over 40 per cent of industrialoutput.Insurance coverage for these enterprises has been pre-cluded both by reach and costs. Already strapped forcapital these businesses have to hoard investible capitaland expansion for that uncovered risk. The need tobe protected against negative outcomes in an environ-ment where reforms are an on-going and where riskswill only rise cannot be overemphasised. Without in-surance the micro, small and medium enterprises haveto find capital to bear the risks. Insurance will enablethem to lower the risk of high capital costs and allowfirms to allocate capital more efficiently and to the corebusinesses.Given the context of sickness among MSMEs as evi-denced in the recent reports of closures in the textilesector, it is imperative that coverage be expanded toenable small entrepreneurs and family retail managedrisks. Insurance will also foster entrepreneurial atti-tudes, innovation, dynamism and strengthen compe-tition among the MSMEs. It has been well establishedthat insurance can help small businesses assess andIndicus White Paper Series Page 22 of  58
  25. 25. price risks, reduce the financial repercussions of vol-atility, incentivise efficiency and loss reduction and ofcourse provide timely compensation for losses.Micro-finance and micro-insurance cannot be stand-alone silos, as they are sometimes perceived to be.Here is a quote from the 2008 report by the C. Ranga-rajan Committee on Financial Inclusion. “In 2003, GoIconstituted a Consultative Group on Micro-Insuranceto examine existing insurance schemes for rural andurban poor with specific reference to outreach, pricing,products, servicing and promotion and to examine ex-isting regulations with a view to promoting micro-in-surance organisations with specific reference to capitalrequirements, licensing, monitoring and review, etc.The report of the consultative group has brought outthe following key issues: Micro-insurance is not viableas a standalone insurance product. Micro-insurance hasnot penetrated rural markets. Traditional insurers havenot made much headway in bringing micro-insuranceproducts to the rural poor. (In addition, the Commit-tee feels that micro insurance has not penetrated evenamong the urban poor)....A study commissioned by theUnited Nations Development Programme (UNDP)titled “Building Security for the Poor - Potential andProspects for Microinsurance in India” states that 90%of the Indian population - some 950 million people -Indicus White Paper Series Page 23 of  58
  26. 26. are not covered by insurance and signify an untappedmarket of nearly US$2 billion. This enormous “miss-ing market” is ready for customized life and non-lifeinsurance, but first, serious mismatches between theneeds of the insured and the insurers must be over-come, pitting priorities against profits. The UNDP re-port has analysed six key issues pertinent to the growthof the micro-insurance industry in India, capturing theconcerns of different stakeholders as indicated below: (i) There are specific reasons for low demand for in-surance in spite of intense need. Suppliers have theirown concerns which helps to explain why there havebeen so little efforts at market development. Conse-quently, the rural market is characterized by limitedand inappropriate services, inadequate informationand capacity gaps. (ii) There are challenges in prod-uct design, which has resulted in a mismatch betweenneeds and standard products on offer. Efforts at prod-uct development/diversification have been limited. (iii)Pricing, including willingness to pay and the availabilityof subsidies, influence the market. In the absence ofa historical data base on claims, premium calculationsare based on remote macro aggregates and overcau-tious margins. Building and sharing claims histories canhelp in aligning pricing decisions with actuarial calcu-lations, thereby reducing prices. (iv) Difficulty in dis-Indicus White Paper Series Page 24 of  58
  27. 27. tribution is one of the most cited reasons for absenceof rural insurance. The high costs of penetrating ruralmarkets, combined with underutilization of availabledistribution channels, hinder the growth of rural in-surance services. This adds to costs, both, managerialand financial. Like inclusive credit, inclusive insuranceis expected to be a “low ticket” business, requiring vol-umes for viability. (v) Cumbersome and inappropriateprocedures inhibit the development of this sector. (vi)Contrasting perspectives of the insured and the insur-ers, lead to low customization of products and low de-mand for what is available.”Indicus White Paper Series Page 25 of  58
  28. 28. Section 4: Additional Positive Externalities ofLiberalizationEvery year, 11 million graduates pass out of India’scolleges and join the workforce. By 2015 this numberis likely to touch 15 million. Indian middle class is vari-ously estimated at around 150 million households withincomes of Rs 90,000 to Rs 5 lakh. This bankable classwill need a choice of long-term instruments to pre-serve their earnings, convert it into wealth. This groupwill also have a formidable impact on the demand forinsurance – both Life and Non-Life. The needs of thehigher working age populace and higher dependent agepopulation will need to be accommodated by creatingvariety of instruments and capacity. If India has tochannelize this demographic dividend it must put intoplace necessary mechanism.In India, nearly 41 per cent of financial savings findtheir way into bank deposits and 26 per cent into tax-in-centivised life insurance schemes. There is a huge needfor long term savings instruments – pension, insuranceand hybrids – which can only come with expansion ofthe financial sector. Secondly, historically, there havebeen guaranteed returns in government-mandated sav-ings instruments. However, increasingly, those fixedreturns will disappear and alternative savings instru-Indicus White Paper Series Page 26 of  58
  29. 29. ments have to be found.On the other hand, India needs to enable fundingof government programmes, infrastructure, housing,backward integration of agricultural output with pro-cessing, small and medium sector industrial expansionand creation of capacity in various sectors. This re-quires improved financial inclusion and better chan-nelizing of savings. With reforms and fiscal deficitsexpected to decline, it can be presumed that the gov-ernment will no longer pre-empt these savings. Indianeeds to build an engine for accumulation and efficientallocation of long term savings for this it needs to ur-gently expand its long-term debt market.There is little doubt about the multiple challenges thatIndia faces and the many advantages that expansion ofinsurance will deliver to help resolve these. The caus-al connection between greater financial development,wider inclusion, deeper risk coverage, higher savings,efficiency, employment and economic growth are wellestablished. It is also important to emphasise the spe-cifics and the beneficial outcome of higher investmentin the sector.The government of India currently borrows nearly Rs1600 crore every calendar day to fund its operations.It needs a deeper long-term debt market to even outIndicus White Paper Series Page 27 of  58
  30. 30. costs and volatility in liquidity conditions. It current-ly is over-dependent on bank deposits. This typicallymeans banks borrow for the short term and lend longterm to the government. This leads to liquidity hiccups,influences inflation and raises the cost of borrowings.Indicus White Paper Series Page 28 of  58
  31. 31. Investment Portfolio of Insurance Industry (in `lakh crore) Graph 2 Investment Portfolio of Insurance Industry (in INR lakh crore) Approved securities including central and state govt. securities Infrastructure, Housing, Firefighting equipment Approved and other than approved Investments ULIPS 20.00 15.00 10.00 5.00 0.00 FY07 FY08 FY09 FY10 FY11Very simply, there is a need for expansion and com-petition in the financial system to deliver reach andefficiency. One of the major benefits of expansion –be it entry of new players or through increased capitalinvestment --is the intensification of competition be-tween various arms of the financial sector. This pro-cess is best illustrated in the expansion of markets firstin the United States and then in other countries includ-ing developing economies.The 2010 Annual Report of the American Council ofLife Insurer’s reports that Life insurers in the UnitedStates managed $ 5 trillion in assets in 2009. Of thisnearly half or $ 2.6 trillion were invested in fixed in-come securities including bonds. These are attractiveIndicus White Paper Series Page 29 of  58
  32. 32. for them for they offer predictable returns and entaillow risk for the insurers. The bonds are issued by or-ganisations looking for long term financing. Theseinclude the US Treasury, federal government bodies,state and local governments. These form the robustframe upon which the long term debt market rests andfinances different levels of government in their proj-ects and programmes.India needs to create a similar backbone of long termdebt to fund and manage its expenditure. As of nowcentral and state governments together spend over Rs5 lakh crore, or roughly $ 100 billion, on social sec-tor programmes. This expenditure will only rise andthe government cannot sustain this and the projectedspend on infrastructure by depending on the bankingto aggregate savings. A wider insurance market will en-able aggregation of long term debt. The present chal-lenges present an opportunity for the government todovetail its social intent into economic planning butenabling the widening of insurance and ensuring out-comes through guidelines.India is ranked 59th in the Global CompetitivenessRanking of the World Economic Forum for 144 coun-tries. Once ahead of Brazil and South Africa, Indianow trails them by some 10 places and lags behindIndicus White Paper Series Page 30 of  58
  33. 33. China by 30 rungs. India is penalised principally for theinfrastructure deficit – in transport, energy and ICT –and is ranked 84th on the list. Indian business has citedthe lack of infrastructure as the biggest hurdle to doingbusiness – ahead of other issues.India needs, according to the 12th Plan estimates, closeto $ 1.2 trillion on infrastructure and faces a gap of over$ 300 billion in funding. This demands channelizingof long term savings and requires widening and deep-ening of insurance coverage. Currently a major shareof infrastructure funding comes from LIC, bonds andbank deposits. For historical reasons nearly 41 per centof financial savings in the country find their way intothe safe haven of bank deposits as savers are facedwith a limited choice for long term instruments.The Working Group of the Planning Commission ob-served “Infrastructure financing is long term in nature.The depository profile of insurance companies is morein tune with the funding requirement of infrastructure.Banks, as discussed, face asset liability mismatch issuesbecause their depository base is short term againstlong term nature of infrastructure loans assets. It istherefore essential that some regulatory changes aregiven effect so that a greater participation by insurancecompanies in infrastructure funding mix is ensured.”Indicus White Paper Series Page 31 of  58
  34. 34. And this has been well established in the experienceof many countries in the Asia-Pacific region. Openingof foreign direct investment in the insurance sectorhas helped South Korea, Taiwan, Mexico, Malaysia andChina deepen the bond markets to create large longterm capital pools to finance infrastructure develop-ment. And the performance and rankings of thesecountries for infrastructure is evidence of the success.At a different level, as India embarks on building thenecessary foundation for double digit growth – investsin infrastructure across sectors – it will be critical forIndian businesses and projects to acquire access to so-phisticated non-life products. This will be vital for mit-igating risks associated with large projects, in manage-ment of capital and in improving efficiency standards.Insurance creates and sustains employment. It is oftenmissed out that expansion of insurance creates em-ployment well beyond the tier I and tier II towns. Asinsurance penetrates further into the tier III, IV and Vtowns it boosts and nurtures both direct and indirectemployment. Insurance not only creates jobs for pro-fessionals such as brokers, insurance advisors but alsofor underwriters, actuaries and subsidiary services.Indicus White Paper Series Page 32 of  58
  35. 35. Growing Employment in the Life Insurance In-dustry Parameter FY00 FY08 FY09 FY10 FY11 FY12 Direct Em- 1,23,000 2,54,332 2,85,244 2,67,940 2,42,682 2,48,703 ployees Individual 7,14,000 24,98,513 29,06,281 29,17,454 26,08,820 23,45,601 agentsSource: Life Insurance Council of IndiaSince 1999, the liberalisation of insurance – with theopening up of the sector to joint ventures between In-dian private sector and foreign insurers – the sector hastriggered over 3 million quality jobs. The number ofdirect employees has grown from 123,000 to 248,703between 2000 and 2012 while individual agents hasgrown three-fold from 714,000 to 23,45,601 –nearly50 per cent of them in the private sector.Indicus White Paper Series Page 33 of  58
  36. 36. Number of Individual agents employed in life in-surance Graph 3 18 16 No. of Individual Agents (in lakhs) 14 12 10 LIC 8 Private Sector 6 4 2 0 2006 2007 2008 2009 2010 2011 YearSources: IRDA Annual Reports accessed from www.irda.inIncrease in capital and further investments – throughthe raising of the FDI cap – will trigger creation offurther jobs not just in the insurance sector but also inother sectors as the beneficial effect of risk mitigationkicks in. As we know India produces over 11 milliongraduates – a number that is expected to rise to over 15million in the coming years – who will seek quality em-ployment. Growth in insurance has already generatedenormous demand for skilled and semi-skilled profes-sionals. Universities and colleges have introduced cur-ricula in insurance and actuarial sciences.As insurance coverage expands, there will be more de-mand and job creation. It also bears mention that theIndicus White Paper Series Page 34 of  58
  37. 37. creation of a pan India capacity in professionals quali-fied to deal with financial services will also enhance thewidening of financial inclusion across the geographiesenabling the penetration of other financial productsranging.For an economy estimated to touch Rs 101 trillion in2013, the paid up equity capital of insurance compa-nies – both for life Rs 23662 Crore and non-life Rs5684 crore – is grossly inadequate. As the economygrows and the population rises there will be pressure toraise capital to meet with the required solvency normsof expanded coverage. If India is looking at higherpenetration that would require higher number of poli-cies – both Life and Non-Life – to be written up whichmeans higher capital will have to be maintained.Add to this the challenge of demography. By 2020 In-dia will have over 900 million the working age popu-lation of 15-60 and over 130 million in the dependentage group of 60-plus. It is well recognised that demo-graphic shifts lead to new segments that need to beserved. While the new earners and savers will look forinstruments to facilitate their consumption and invest-ment. Given the rise in life expectancy – Indians nowwill have an expectancy of nearly 80 years which is twodecades of non-earning life -- those in the dependentIndicus White Paper Series Page 35 of  58
  38. 38. age group will require multiple instruments for life cov-erage, health care as also life sustaining regular income.The current capacity is nowhere near what will be re-quired to service the needs of earners and savers asalso those dependent. The demographic dividend inIndia will not last beyond 2030. Beyond 2030 or 2035,India will begin to grey. This greying population andits medical needs need to be catered to. Accordingtoone of the estimates made by IRDA in order to in-crease insurance penetration from the existing level of4.7% to around 8% an additional capital injection ofRs. 40,000 crore is required.Given the competing claims on investible resources inIndia there is no doubt the capital must be deployedby foreign partners in return for fair value in equity.China which has allowed 50 per cent FDI in insuranceprovides a stark comparison. Insurance companies inChina – for purposes of illustration given the contextof the size of the population and relative size of econ-omy –had in 2010 over RMB 4.9 trillion in Assets un-der Management or AUM of nearly 44 trillion rupeescompared to India insurance companies which have Rs15.12 trillion in Assets under Management.Section 5: The Half-Hearted LiberalizationIndicus White Paper Series Page 36 of  58
  39. 39. Before 1956 for Life and before 1972/73 for generalinsurance, the private sector did exist in the insurancesector. Nationalization was partly a reaction to the in-adequate nature of regulation. The regulatory struc-ture does exist now. The former monopoly and qua-si-monopoly led to inadequate service and low levelsof customer satisfaction, reflected in a large numberof cases against insurance companies under the Con-sumer Protection Act.Insurance is in the Union List of the Seventh Schedule.Ostensibly, there has been liberalization since 1999,with 26% foreign equity permitted. However, the sec-tor is still largely monopolized by State-run insurancecompanies. In other words, the benefits to consumersfrom competition and efficiency are yet to materialize.The threshold level of 26% is itself a hang-over andartificial. In other sectors, such equity levels have beengradually been dispensed with. In any event, such ar-tificial thresholds can be circumvented. There is nological reason why the cap should not be increased to51%, or even 100%.The proposal to hike foreign investment to 49 per centfrom the present 26 per cent is enveloped in a fog ofillogical arguments. The primary thesis is that openingup the sector will make it vulnerable to external shocks.Indicus White Paper Series Page 37 of  58
  40. 40. Truth is the insurance industry is profoundly differentfrom other financial services. It is also regulated morerigorously. The International Association of InsuranceSupervisors had noted in June 2010 “for most classesof insurance there is little evidence of insurance eithergenerating or amplifying systemic risk, within the fi-nancial system itself or in the real economy.” Indeedsome would argue that the insurance sector is a stabi-lising factor to help limit systemic risk.The third theory is about corralling of domestic sav-ings. The fear of multinationals taking control of do-mestic savings is misplaced as is the fear of flight ofcapital. This is best proven by the experience in thebanking sector. Foreign investment level in banking is74 per cent and there are fully foreign owned banks. Ifthere are any doubts or concerns these should be lay-ered in the guidelines on deployment of the premiumwhich are robust enough.If one reads the 41st Report of the Standing Commit-tee on Finance, the reservations are entirely about reg-ulation and guidelines. “The Committee, while agree-ing with the necessity of bringing in comprehensivechanges in the archaic laws governing the insurancesector so as to make the legislative framework capableof facilitating insurance business in the current eco-Indicus White Paper Series Page 38 of  58
  41. 41. nomic scenario, nevertheless have apprehensions onthe implications of some of the policy issues proposedin the amendment Bill. The Committee feel that thesuggested policy stance of enabling a greater role forforeign capital in the insurance sector, may not neces-sarily have the desired impact in view the experience ofits limited role thus far in terms of facilitating invest-ment in infrastructure, deepening insurance accessibil-ity for the poor and also in developing products suitedas a means of providing social security to the Indianmasses at large. On the other hand, increased role offoreign capital may lead to the possibility of exposingthe economy to the vulnerabilities of the global marketby way of likely inheritance of unsound balance sheetsand financial health of the foreign partners throughjoint ventures and subsidiary routes, flight of capitaloutside the country and also endangering the interestof the policy holders.” Surely, an inability to formulateregulation and guidelines should not be taken seriously.By the same token, nothing should have been openedup to FDI. Indeed, there are, or can be, potential costs.However, the benefits far outweigh the costs, real orimagined.India has believed in gradualism in opening up sectors.It is an approach that has worked. The move to allow26 per cent foreign ownership in insurance has paidIndicus White Paper Series Page 39 of  58
  42. 42. dividends. It has helped expand coverage, induct newinnovations, spur competition and has created over 3million new jobs. It is time for India to take the nextstep and hike the limit to 49 per cent. It will only bein keeping with global practice. Currently Korea, Tai-wan and Mexico allow 100 per cent foreign ownership,the cautious Malaysia allows 70 per cent, Philippines51 per cent and even China allows 50 per cent foreignownership in insurance.There are some who argue that the additional capitalrequired can be raised from domestic savings. This isa theoretical possibility. Fact is this isn’t practical. Thereality as of today is that based on IRDA estimates thecapital required over the next five years works out to Rs61,200 crore. India’s insurance market has experiencedimpressive growth in the last decade, yet the penetra-tion remains as low as 5.1%. As per IRDA’s projections,the life insurance industry will need capital of at leastRs 40,000 crore ($7.27 billion) to achieve an insurancepenetration level of 8% of GDP. However, over theentire last decade Indian promoters were able to investabout Rs 21,000 crore ($3.82 billion) only. Obviously,to harvest a capital of Rs 61,000 crore ($11.09 billion)in the next five years from within the domestic markets– via capital markets or through alternate sources – isa tall order.Indicus White Paper Series Page 40 of  58
  43. 43. Indian companies have invested for over a decade with-out dividends and have accumulated losses. The insur-ance business is long term in nature for both serviceproviders and for consumers. The break-even phase isinfluenced by the quality and quantity of capital invest-ed. Those in Life for instance have lost over $ 4 billionin the past decade. Indeed, nine of the Nine of the 23private sector life insurers lost money in the year endedin March. In the Non-Life segment the insurers havecumulatively lost nearly $ 6 billion and 13 private sectorinsurers reported losses in the year ended March 2011.There are other challenges. 13 of the insurance compa-nies are promoted by banks, which face the twin chal-lenges of meeting Basel II ratios in banking as alsofunding their insurance business without breaching the20 per cent net worth norms on investment in insur-ance. Domestic companies who are already bearing theburden of providing for 74 per cent of the equity arealready constrained. Companies could go to the capitalmarket but that raises issues: quality of paper, appetitefor such large issues in the Indian capital market andfinally the decision to dilute or issue equity is best leftto investors. The capital could also be raised as debt tofund equity but there is the cost factor.In sum, a reluctance to open up insurance suggests aIndicus White Paper Series Page 41 of  58
  44. 44. lack of faith in the regulatory structure. Whatever maybe said about other sectors, in the financial sector, thequality of Indian regulation is excellent and there is noreason to presume that regulation will fail.Mr. Yashwant Sinha, Chairman of ParliamentaryStanding Committee on Finance had this to say as Fi-nance Minister in 1999 when he opened the sector to26 per cent FDI: “Mr. Deputy-Speaker, Sir, the worldhas progressed. There are all kinds of insurance prod-ucts which are being marketed in various countries ofthe world, which are unfortunately not yet available inIndia. It is our belief that with this opening up, it willbe possible for those insurance products to come upin this country and provide both depth and weight tothe market…through a larger coverage in the insur-ance sector, it is possible to cover a larger segment ofthe population through health insurance. For instance,there are pension schemes. There are sections of em-ployees, sections in the unorganized sector, particular-ly, who have no pension cover. Now, there could beinsurance companies which will provide them pensionfacility. They can make small contribution. That willcome in handy when they retire. Now this is the kindof social security which will become possible once theinsurance sector is opened up, and that is why we areputting social service, social sector obligations even onIndicus White Paper Series Page 42 of  58
  45. 45. the newer companies.” Every argument he made thenis more valid today. And the achievements of these ob-jectives require capital and ownership in the expansionof insurance. And all those arguments apply equallywell to 49% and even 100%.The proposal to enhance FDI limits in insurance from26 per cent to 49 per cent promises wider financial in-clusion, better aggregation of savings and a vital boostto creation of long term assets. There is absolutely noroom for dispute that India will need to expand insur-ance coverage if it is serious about its ambitions of8-plus per cent GDP growth.Insurance coverage is about outcomes but is moreabout the enablers that it promotes in the processes.The critical importance of insurance in an economy iswell recognised. Indeed recent research has establisheda strong relationship between the development of in-surance sector and economic growth. As a factor ofefficiency insurance is a necessity for small businessesand agriculture. To start with both entrepreneurs andfarmers without insurance coverage are forced to holdcapital to meet with uncertainty. Insurance can pro-vide coverage and obviate need for additional capital.Insurance can also provide coverage on credit. Giventhe embedded risks manufacturers may forego lucra-Indicus White Paper Series Page 43 of  58
  46. 46. tive markets but transport insurance helps reach newcustomers. Farmers are known to hold seeds in reserve“just-in-case”. Crop insurance – for weather and oth-er vagaries – can enable farmers to invest deeper forhigher yields and incomes. When public policies enablecoverage insurance can broaden and deepen produc-tivity pushing up growth.Insurance also serves a larger social and public inter-est in helping preserve order and is therefore of vitalpolitical importance. Insurance enables individuals andinstitutions to protect economic interests by poolingthe risk of loss or catastrophe within communities andthereby lessens social rupture.Insurance coverage though demands capital. Expan-sion of insurance coverage demands higher capital in-put not just for widening the scope but also to bring inbetter systems in risk assessment. The processes thatwill follow –new payment systems, back-end extensionservices in agriculture, aggregation of reach for healthcoverage, risk assessed entrepreneurial innovation andpredictability in non-life insurance – will generate em-ployment and promote growth. Above all the channel-izing of these savings will enable India to shift fromthe current dependence on bank deposits to long-termcapital for funding infrastructure that it so desperatelyIndicus White Paper Series Page 44 of  58
  47. 47. needs.Here is a quote from the 12th Plan Document. “Thesteps taken to liberalise FDI, especially in areas wherethere is evident investor interest such as for example,FDI in retail, would help by sending the right signals.We must build on the success of previous liberalisationin FDI in other sectors, such as insurance, and beforethat telecom....The government has been consideringsteps to increase the scale of FDI permitted in theinsurance sector but a lack of political consensus hasheld back change.” This clearly suggests that there isno economic or rational reason for not increasing eq-uity limits on FDI in insurance. The constraint is lackof political support, which suggests that one shoulddo a better job of communicating economic rationaleto Parliament.Indicus White Paper Series Page 45 of  58
  48. 48. Section 6: The Half-Half-Hearted LiberalizationProposalThere is yet another half-half-hearted liberalizationproposal that is floating around. This is the idea thatforeign equity in Indian private insurance JVs shouldbe increased by allowing FIIs to invest 23% with newequity, instead of raising the FDI equity cap to 49%.There are several reasons why this is a bad idea. First,there are foreign insurers who have already entered theIndian insurance industry. There are foreign share-holders in Indian insurance JVs. This entry was basedon certain principles and assumptions about policy.Though the FII mode doesn’t quite violate the letter ofthe law, it violates the spirit of the law and principlesof contract. Second, FIIs have limited experience inthe insurance industry. This third-party entry of FIIsintroduces entities who are interested in short-termwindfall gains (when IPOs are launched), rather thanthe longer-run. This is not a normative statement. Itis a statement about the nature of FII flows. Hence,it biases distortions in favour of those who are inter-ested in the short-term and against the interests ofthose who are interested in longer-term, that is, thosewho have borne the costs of regulatory and economicuncertainty. Third, existing ventures have pre-emp-Indicus White Paper Series Page 46 of  58
  49. 49. tion rights, that is, current shareholders have the rightto buy the shares of a shareholder who wants to optout. FII is not classified as fresh equity. Therefore, adomestic shareholder cannot share to such a partner.This discriminates against existing foreign partners,who will be forced to accept new domestic partners.Fourth, existing foreign insurers in JVs are discrimi-nated against, because FIIs obtain an ownership ad-vantage. Fifth, government policy has always arguedFII inflows are volatile and FDI should be preferredover FII. In this segment, the Chairman of IRDA hasspecifically stated that FII inflows are volatile and notdesirable. Sixth, both foreign and domestic investorsin existing JVs have no incentive in favour of allow-ing FIIs inflows which dilute ownership. Therefore,little new investment is likely to come in. Existing JVagreements often have clauses that do not allow oth-er foreign investors to take up equity. If the idea isto increase capital inflows, this is therefore unlikely tohave much impact. Seventh, existing JV agreementsreflect the intent of foreign partners to increase equityto 49%, when the policy and rules allow this. That is,foreign insurers who have entered expect the cap to beprogressively raised and this expectation was implicitlyencouraged by the government. That’s indeed the wayit has worked for investment banks and asset manage-Indicus White Paper Series Page 47 of  58
  50. 50. ment companies, businesses which are closely allied toinsurance. Eighth, if the intention is to increase theconfidence of the foreign investment community inIndia as a destination, this move will be counter-pro-ductive. It will send a negative signal that India is along-term market that needs capital.Therefore, this half-half-hearted liberalization measureis a bad idea. Instead of muddying waters, one shouldstick to the original plan of hiking FDI caps from 26%to 49%, and perhaps even 100%.Indicus White Paper Series Page 48 of  58
  51. 51. About the Authors:Bibek Debroy is an Indian economist, who iscurrently a Research Professor at the Centrefor Policy Research, New Delhi. He was ed-ucated at Presidency College, Calcutta, DelhiSchool of Economics and Trinity College,Cambridge. Prof. Debroy has taught at Presidency College, Cal-cutta, the Gokhale Institute of Politics and Economics, IndianInstitute of Foreign Trade and National Council of Applied Eco-nomic Research.His past positions include the Director of the Rajiv Gandhi In-stitute for Contemporary Studies at Rajiv Gandhi Foundation,Consultant to the Department of Economic Affairs of FinanceMinistry (Government of India), Secretary General of PHDChamber of Commerce and Industry and Director of the Proj-ect LARGE (Legal Adjustments and Reforms for Globalisingthe Economy), set up by the Finance Ministry and UNDP forexamining legal reforms in India. Between December 2006 andJuly 2007, he was the rapporteur for implementation in the UNCommission on Legal Empowerment for the Poor. Prof. Debroyhas authored several books, papers and popular articles, has beenthe Consulting Editor of some of the most prominent financialnewspapers in the country and is now Contributing Editor withIndian Express. He is a member of the National ManufacturingCompetitive Council. He is also a member of the Mont PelerinSociety.Indicus White Paper Series Page 49 of  58
  52. 52. Shankkar Aiyar is the author of Acciden-tal India: A History of the Nation’s Passagethrough Crisis and Change. This best-sellingbook digs deep into Indian history to analysethe cause and catalysts of seven transforma-tive events to demonstrate that it is crisis andserendipity – not policy or political purpose –that propels the India Story. Accidental India has won praise fromacademics, policy makers and business icons.As an analyst, Aiyar specialises in economics and politics with em-phasis on the interface between the two. As a public intellectual,he provides insights on news channels and as columnist writes onhow politics impacts governance, the economy and financial mar-kets. As a journalist for nearly three decades, he has won awardsand been at the helm of a national newspaper and newsweekly.Aiyar has authored a study on India’s socio-economic fault lines.His investigation on 25 years of political corruption, SmokingGuns, is part of an anthology on Indian journalism. He has beena Wolfson Chevening Fellow at Cambridge University where hestudied the Lifecycles of Emerging Economies. Shankkar Aiyar,50, is currently researching the linkages between demographics,globalisation and conflicts.Indicus White Paper Series Page 50 of  58
  53. 53. List of Indicus research papers1. “Gujarat- The Growth Story”, Bibek Debroy, Indicus White Paper Series, New Delhi, India, 2012,2. “Gujarat – The Social Sectors”, Bibek Debroy, Indicus White Paper Series, New Delhi, India, 2012,3. “Night Lights and Economic Activity in India: A study using DMSP-OLS Nighttime Images” Proceedings of the 32nd Asia-Pacific Advanced Network Meeting. New Delhi, India, 2011, Jointly with Koel Roychowdhary4. “Assessing Income Distribution for India at the District Level Using Nighttime Satellite Imagery”, Proceedings of the 32nd Asia-Pacific Advanced Network Meeting. New Delhi, India, 2011, jointly with Mayuri Chaturvedi, Tillota- ma Ghosh5. “The Impoverishing Effect of Healthcare Payments in India: New Methodology and Findings”, jointly with Peter Berman, Rajeev Ahuja, Economic and Political Weekly, Vol. 45 No. 16 April 17 - April 23, 20106. “India Labour Report 2009 – The Geographic Mismatch & A Ranking of Indian States by their Labour Ecosystem” jointly with Bibek Debroy, TeamLease Services, 20107. “How Good is your CM? – State of the States,” jointly with Bibek Debroy India Today, 29 November 2010.8. “Financial Inclusion via Universal Access to Electronic Pay- ments” jointly with Sumita Kale, in Sameer Kochhar (ED.), Essays In Honour Of Vijay L. Kelkar, Academic Founda- tion, New Delhi 20109. ‘Small States, Large States’, jointly with Sumita Kale, Ana- lytique, Vol.VI, No. 4, Bombay Chamber of Commerce and Industry, March 2010Indicus White Paper Series Page 51 of  58
  54. 54. 10. “Gurgaon and Faridabad- An Exercise in Contrasts”, jointly with Bibek Debroy, Working paper 101, Center on Democ- racy, Development, and The Rule of Law, Freeman Spogli Institute for International Studies, Stanford University School of Law11. “Indian Steel Industry, Public Enterprises, Government Policy and Impact On Competition for the Competition Commission of India”, jointly with Payal Malik and others, January 200912. “Indian Petroleum Industry, Public Enterprises, Govern- ment Policy And Impact On Competition for the Compe- tition Commission of India”, jointly with Ashok Desai and others, January 200913. “India Labour Report 2008 – The Right to Rise: Making In- dia’s Labour Markets Inclusive”, jointly with Bibek Debroy, TeamLease Services, 200914. “India’s Borderless Workforce”, jointly with Payal Malik, White Paper, Manpower India, 200815. “What Ails VAS in India? Latent Markets and Market Fail- ures” jointly with Sumita Kale, Occasional Paper, Internet and Mobile Association of India, April 200816. "Pension Provision in India - Current Status, Proposed Reform and Challenges Ahead", jointly with Sumita Kale Ch- 12 in Pension Provision: Government Failure Around the World, edited by Oskari Juurikkala, Nicky Silver Philip Booth. Inst17. “A Stable Regime For The Rapid Growth Of E-Payments”, Occasional Paper, Internet And Mobile Association of India, May 200718. Contributor to “The Oxford Companion to Economics in India”, Kaushik basu (Ed.), Oxford University Press, No-Indicus White Paper Series Page 52 of  58
  55. 55. vember 200719. “State of the States”, jointly with Bibek Debroy, India To- day, 24 September 200720. “Legal Structure and Economic Freedom of States in India,” jointly with Bibek Debroy, Judicial Reforms in India, Issues and Aspects, Rajiv Gandhi Institute for Contempo- rary Studies and Academic Foundation, 200721. “Health Infrastructure in Rural India”, jointly with Siddhar- tha Dutta, India Infrastructure Report, 3inetwork, chapter 11, pg-265-285, 200722. “Exclusive growth – Inclusive inequality”, Center for Policy Research, Working Paper, 200723. “Exclusive Growth – Inclusive Inequality”, jointly with Bibek Debroy, Vol. 116, chap. 5 in Economic Developments In India, edited by Uma Kapila Raj Kapila. Academic Foun- dation, 200724. “The Indian Reform ‘Model’, in Development Models, Glo- balization and Economies: A Search for the Holy Grail?”, ed. John B. Kidd and Frank-Jürgen Richte, Palgrave Macmil- lan, chapter 5, page 74, March 30, 200625. “Socio-economic Performance of Constituencies: A Response”, Economic and Political Weekly, Vol. 41 No. 36 September 09 - September 15, 200626. “Social Infrastructure: Urban Health And Education”, Chapter 11, page 232-253, India Infrastructure Report, 3inetwork, 200627. “Rapid growth of selected Asian economies: Lessons and Implications for Agriculture and Food Security, China and India”, jointly with Jikun Huang, Jun Yang, Bibek Debroy, Volumes 1-2 of Policy Assistance Series, Food and Agricul- ture OrgIndicus White Paper Series Page 53 of  58
  56. 56. 28. “Poor provision of household water in India: How entre- preneurs respond to artificial scarcity” jointly with Aarti Khare, The Water Revolution: Practical Solutions to Water Scarcity, chapter 4, International Policy Press, March 15, 200629. “Income Differentials and Returns to Education” jointly with Mridusmita Bordoloi, Economic and Political Weekly, Vol. 41 No. 36, September 09 - September 15, 200630. “Foreign Direct Investment in India”, jointly with PL Beena, Sumon Bhaumik, Subir Gokarn and Anjali Tandon, , chapter 5, Investment Strategies in Emerging Markets, Comparative Economic Studies - June, 200631. “Economic Freedom for States of India 2006,” jointly with Bibek Debroy, Rajiv Gandhi Institute for Contemporary Studies and Friedrich Naumann Stiftung, March 200632. “Land use by the poor in Delhi: Issues of Fuzzy Owner- ship” jointly with V.N. Saroja, Rajiv Gandhi Institute for Contemporary Studies, Friedrich Naumann Stiftung, 200533. ‘More Rural Roads = Fewer Villages’, Energising Rural Development through Panchayats in Bibek Debroy (Ed.) Energizing Rural Development through Panchayats, Aca- demic Foundation, 200534. “The Need for Structural Reform in Indian Civil Aviation”, Working paper, Liberty Institute, 200535. “Public & Private Garbage Removal Services in India: Impact on the Environment”, jointly with Amar Gujral, and Aarti Khare, Working Paper, Liberty Institute , 200536. “Private Response to Poor Public Provision for Household Water”, jointly with Aarti Khare, Working paper, Liberty Institute, 200537. “Results of an NSSO Survey of Urban Water Access:Indicus White Paper Series Page 54 of  58
  57. 57. Implications for Policy” jointly with Peeyush Bajpai, ch-12, Pg-290-295, India Infrastructure Report 2004, 3iNetwork, Oxford University Press, New Delhi, 200438. “How and Why of Ranks,” jointly with Bibek Debroy, State of the States 2004, India Today, 200439. “An Economic Freedom Index for India’s States,” in B. De- broy edited, Agenda for Improving Governance, Academic Foundation and Rajiv Gandhi Institute for Contemporary Studies, jointly with Shubhashis Gangopadhyay and Bibek Debroy, Delhi40. “Survey of FDI in India” jointly with Sumon K. Bhaumik, P. L. Beena, Subir Gokarn, National Council of Applied Economic Research, India, Centre for New and Emerging Markets, London Business School, April 200341. “Regional Inequality in India”, jointly with Nirvikar Singh, Aoyu Chen, Aarti Khare, Economic and Political Weekly, Vol. 38 No. 30 July 26 - August 01, 200342. “India’s Best and Worst States,” jointly with Bibek Debroy, India Today, Special Issue, 19 May 200343. “Incidence of Poverty and Hunger in the Districts of India”, jointly with Amaresh Dubey, Working Paper, Rajiv Gandhi Institute for Contemporary Studies, 200344. “Financial Constraints and Growth: Evidence from the Indian Corporate Sector”, jointly with Sudipto Dasgupta, Shubhashis Gangopadhyay, Development Financial Institu- tions, Journal of Emerging Market Finance, vol. 2 no. 1, pg 83-121, Janu45. “The Geography of Post-1991 Indian Economy”, jointly with Aarti Khare, Global Business Review, Vol. 3 No. 2, pg 321-340, August 200246. “So Many Lost Years: The Public Sector Before and AfterIndicus White Paper Series Page 55 of  58
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