rising income levels india

1. Rising income levels driving insurance penetration: IRDA
First-year premium in 2006-07 registers 94.96% growth
Our Bureau
Hyderabad, April 12 The insurance business measured in the context of first year
premium has registered an impressive growth of 94.96 per cent in 2006-07 as against
47.94 per cent in the previous year.
According to the Annual Report 2006-07 of Insurance Regulatory and Development
Authority (IRDA), this has resulted in increasing insurance penetration in the country.
The premium volume (or penetration of insurance) as a ratio of Gross Domestic Product
(GDP) for the year 2006 stood at 4.10 per cent for life insurance and 0.60 per cent for
non-life.
The growth in the life insurance can be attributed to rise in income levels. The saturation
of markets in many developed countries has made Indian insurance markets even more
attractive for global insurance majors, the report observed.
The growing strength of the life insurance industry can also be gleaned in the paid-up
capitals of the insurers.
The total capital of the life insurers at the end of March 2007 stood at Rs 8,124.14 crore.
The addition to the capital during 2006-07 was Rs 2,232.36 crore. The domestic and
foreign joint venture partners added Rs 1,777.96 crore and Rs 454.40 crore respectively.
NEW POLICIES
The new policies underwritten by the industry were 461.52 lakh as against 354.62 lakh
during 2005-06, showing an increase of 30.14 per cent. While the private insurers
exhibited a growth of 104.64 per cent (73.37 per cent), LIC showed a growth of 21.01
(31.75 per cent).
The market share of private insurers and LIC in terms of policies underwritten was 17.17
per cent (10.92 per cent) and 82.83 (89.08 per cent) respectively.
The life insurance industry on the whole recorded a premium income of Rs 1,56,041.59
crore during 2006-07 as against Rs 1,05,875 crore in the previous year.

2. The world-wide insurance premium amounted to $3,723 billion in 2006 comprising of
$2,209 billion in life and $1,514 billion in non-life.
Much to gain from a successful India
D. Murali
India's economy is more balanced than that of other fast-growing Asian economies,
observes Raghuram G. Rajan in Fault Lines: How hidden fractures still threaten the world
economy ( Collins). “Partly as a result of democratic pressures, it has not been as biased
towards producers or exporters, and therefore does not require a major change in strategic
direction. However, there are a number of areas where it needs to act far more decisively
and rapidly than it currently is doing,” he adds.
Foremost in the section on ‘impediments' the author rues that India has the people but the
jobs are not where the people are, and that not all the people are necessarily capable of
undertaking the jobs that are being created.
Many of the new jobs are in the fast-growing, better-educated western and southern
coastal states that are connected through rail, roads, and ports to the big cities and to the
global economy, but much of the population growth in India is taking place in states like
Bihar, Madhya Pradesh, and Uttar Pradesh, he reminds. With incomes in these states
lagging behind owing to the level and penetration of education and infrastructure, ‘many
of the people have voted with their feet, migrating to work in the overcrowded cities of
the richer states.'
Land factor
If better infrastructure can be a solution, one may wonder if it should be difficult to build
transportation links, power plants, and sewerage, especially when China seems to have no

3. difficulty at all. The critical factor in short supply, as Rajan decodes, is not technical
knowhow, managerial capacity, labour or capital, but land.
How come, then, that European countries with far greater population densities seem to
have little problem acquiring the land they need for critical infrastructure? In India,
though, land rights are often poorly demarcated, he reasons. “In the poorest states, land
and revenue records are not well maintained. Moreover, a number of communities, such
as the tribal populations that are spread throughout India, do not have formal title to land
but have been customary users of it over centuries.”
To add to the murkiness of land rights in India, even those under whose names the land is
registered may not have ownership, the author cautions. “A registered tax-paying owner's
title may be invalidated if someone else can prove that her grandfather was cheated out of
his rights to the land many decades ago.”
He is hence positive that reforms clarifying who owns what, and giving them full and
clear title to the land will create a much more vigorous and liquid market for land
transactions, and will smoothen the way for the land acquisition that is necessary for the
creation of infrastructure and for industrialisation.
Raj of the land mafia
Watch out, there are powerful vested interests who will feel threatened by meaningful
land reforms. One such group, as Rajan instructs, consists of people who grab
government land. “After all, if few know it is public property, well-placed payments here
and there can ‘privatise' the land, and no one else need know about it. If land records
were clearer and more easily accessible, land grabs could be easily identified, especially
by an agile free press, and the authorities would be forced to take action.”
He is anguished that the ‘Licence Permit Raj' has given way to the ‘Raj of the land
mafia,' where land acquisition is possible for insiders who know how to work the system,
but extremely hard for outsiders. “This immediately ensures that only a few insiders are
capable of undertaking large-scale infrastructure projects or creating new industrial
enterprises, which not only limits the pace of growth but also creates enormous profits for
these insiders – as they become seen as the only ones capable of delivering on promises
to build, and therefore the only ones who win government contracts.”
‘Dubious' distinction
Rajan is dismayed by the ‘dubious' distinction of India as the country with the second
largest number of billionaires per trillion dollars of GDP, second only to Russia, before
the recent crisis. Given that Russia has fared somewhat worse during the crisis, it would
not be surprising if India has already achieved the number one status, but why call it
‘dubious'? Not because Rajan is against wealth but because three factors – land, natural
resources, and government contracts or licences – are the predominant sources of the
wealth of India's billionaires, and all of these factors come from the government.

4. It would augur better for India, argues the author, if more of its billionaires came from
competitive sectors with free entry such as software, and fewer emerged in sectors where
government favour influences profitability.
Another impediment is that the government occupies immense space in India, but
generally does a very poor job delivering the goods and services it chooses to provide,
Rajan writes. Generally, it is not the rich and the upper middle class who are hurt by this
barrier; they can opt out of most government-provided goods and services because they
have the money to buy these from competitive and efficient private sector, he explains.
In contrast, ordinary Indians do not have the money to escape the public sector entirely,
as this vivid portrayal captures: “Whether it is the public distribution system where the
best grain is often siphoned off, the education system where teacher absenteeism in
government schools is rampant, the financial system where despite decades of public
sector focus on financial inclusion most Indians do not even have a bank account, or the
public clinics where doctors and nurses have little time for each patient, the outcome is
the same: the public, especially the poor in whose name politicians push government
expenditures on services, actually see very little service.”
In sum, instead of redressing the balance between the poor and the rich, between the
disconnected and the well connected, between the powerless and the powerful, the Indian
state, despite all its socialist rhetoric, often ends up discriminating against the former and
in favour of the latter, laments Rajan. He frets that the government, despite the best
intentions of some dedicated officials, has the bicyclist's mentality of bowing on top and
kicking below.
Despite all the successes that India has had, this deficiency of governance has the greatest
potential to trip it up, for it accentuates the inequality, the privilege, and the resulting
social conflict that invariably chokes growth, the book warns.
The privatisation by stealth of the Indian state must be reversed, even while the vibrant
private sector is given the regulatory support to flourish, urges Rajan. He is hopeful that
breaking the nexus between the poor voter and the corrupt politician will allow dedicated
reformers the space and the support to cleanse and improve the system. “In many areas,
this will require the government to move from actually providing goods and services to
creating a fair, transparent, enabling framework to govern how they are provided; from
being a player to becoming a fair umpire.”
India's story, if it is successful, will be an inspiration to many other poor countries, the
author expects, because few countries have grown rapidly from abject poverty even while
their people have enjoyed full democratic freedoms. “If messy, chaotic India – with its
many communities, languages, religions, and castes – can still pull it off, it can undercut
the legitimacy of authoritarian regimes in much richer countries who insist that the loss of
political freedoms is the price their citizens have to pay for economic growth. The world
has much to gain from a successful India.”

5. A book that should be the default choice of discerning finance professionals when they
enter the store the next time.
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