Indian firms in doublespeak on insurance FDI: WikiLeaks

US diplomatic cables say Indian partners might be actually lobbying against raising the FDI cap.

Indian partners in insurance joint ventures might have been less gung-ho than previously believed about raising the ceiling for foreign direct investment (FDI) in the sector.

A WikiLeaks cable originating from American diplomatic sources based out of Mumbai suggested that domestic partners might be lobbying against raising the FDI cap.

"Many industry representatives believe that some domestic partners, especially the more established firms, no longer need the additional foreign capital, and some may be working against the lifting of the FDI cap behind the scenes," said the cable dated August 7,2009; id: 09MUMBAI328_a).

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The cable included inputs from a number of officials in the sector on the matter. It quoted Saibal Choudhury of MetLife Insurance, who suggested that opponents want to include portfolio investment or foreign institutional investment (FII) under the raised FDI cap. While MetLife declined to comment, Choudhury could not be reached for one.

The introduction of FII into the equation might help the domestic partner bargain for a better deal with the partner, according to the cable.

The finance ministry is also looking to allow a 23 per cent FII stake instead, as an alternative to raising the FDI cap to 49 per cent, according to recent media reports. Parliament's standing committee on finance has opposed raising the cap to 49 per cent.

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The cable quoted Peter Akers, India head of Munich Reinsurance, as saying not all domestic players see the increase in FDI as advantageous at the moment, since many had a steady stream of premium or investment income, making major capital expenditure less important.

"Akers insisted the domestic partner of at least one major joint venture was currently lobbying against the hike in capital, while the foreign partners were lobbying for it," the cable said.

Munich Reinsurance declined to comment. Akers could not be reached for a response. While many in the insurance sector have publicly supported the Insurance Amendment Bill to raise the cap on FDI from 26 per cent to 49 per cent, noted the cable, the Bill continues to be relegated to the background in favour of "more populist economic and social legislation in Parliament".

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A comment section at the end of the cable said the reform might take a while to pass. "Since some JV contracts require the Indian partner to sell equity to the foreign partner once the law changes, Indian partners may be reluctant to sell at the expected current valuation...it is a good reminder that in India, as elsewhere, there are often unseen interests and influences on every side of an issue, even those that seem to be 'low hanging fruit,' as this legislation has been frequently characterised."

The cable signed off with a prophetic outlook for the Bill. "If the Congress (party) continues to focus on populist - but inclusive - legislation and policies, such as additional rural spending, we should expect even the most sensible economic reform measures to take far longer to implement than expected," it said. Nearly four years later, the Bill remains stuck.