WTO will seek to remove FDI cap in insurance

As a member of the World Trade Organisation (WTO), India will have to lift the cap on foreign capital in the insurance sector sooner or later, said Ashwin Parekh partner at the consultancy firm Deloitte & Touche Tomatsu. He made a presentation at the Calcutta Chamber of Commerce today.

Member countries of General Agreement on Trade and Services (GATS) do not believe in imposing limits in terms of foreign capital.

Today, the government has imposed an upper limited of 26 per cent on foreign equity in insurance. This is even as other financial sector players like banks and mutual funds have a far higher ceiling of 49 per cent and 75 per cent respectively.

Speaking to Business Standard in Mumbai later in the day, Parekh said: "WTO has strong reason to put up a plea before the Indian government to open up tariffs as well." The Indian insurance market continues to operate on uniform pricing even after the opening up of the sector.

The provisions of WTO will take effect from 2005, thereby bringing about greater degree of competition in the Indian insurance sector.

It might however be recalled that the Cancun talks failed earlier this year as developing countries were not agreeable to uniformity in foreign investment, as this would infringe on respective countries' rights.

However, Parekh stated that there is a cost to foreign capital deployed, which needs to be protected when pricing is uniform.

This is especially of importance when the Indian government has artificially imposed minimum limits on capital for private sector companies, which is higher than in the case of the state-owned insurer.

"Under the WTO protocol there should be no artificial caps if one were to ensure a level playing field. This is especially so when in most cases management control rests with the foreign partner who also brings in the best international practices," said Parekh.