The Case for Increasing FDI Caps in Insurance

The Case for Increasing FDI
Caps in Insurance

Bibek Debroy
&
Shankkar Aiyar

January 2013

Indicus White Paper Series

White Paper on

The Case for Increasing
FDI Caps in Insurance

Bibek Debroy
&
Shankkar Aiyar

Indicus Analytics

January 2013

Table of Contents

Section 1: Introduction ....................................................................................................3

Section 2: The Present Poor Penetration and Density of Insurance........................5

Section 3: The Financial Inclusion Agenda.................................................................17

Section 4: Additional Positive Externalities of Liberalization.....................................25

Section 5: The Half-Hearted Liberalization................................................................36

Section 6: The Half-Half-Hearted Liberalization Proposal ....................................45

Section 1: Introduction

T
he history of India’s political economy is
replete with missed opportunities. The ap-
proach to growth and investment has been
often stranded in the many romantic notions of self-
reliance 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 grad-
ualism 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 ev-
ery such initiative has been beneficial, delivering great-
er common good.
Higher economic growth is driven by competition and
consumer choice. Competition drives efficiency and
efficiency drives growth. This is true of every coun-
try 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
Indicus White Paper Series Page 2 of 58

protected, but at the expense of consumers. Consum-
ers suffer from higher prices, bad service and limited
choice. This is straightforward under-graduate eco-
nomic theory. The gains to inefficient producers are
more 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. 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 compel-
ling arguments? Is there anything special about insur-
ance 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, liberaliza-
tion 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, know-
how, improved management practices and customer
orientation. Therefore, protection not only harms the

cause of consumers, it also harms the cause of pro-
ducers. 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.


Section 2: The Present Poor Penetration and Den-
sity of Insurance

In 2013, the Indian economy is expected to touch $ 2
trillion in GDP. Yet for the size of the economy and
its potential, India has an abysmal level of insurance
penetration and density. Total penetration at 5.1 per
cent 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 of
purchasing power parity. But in terms of penetration,
it is ranked lower than South Africa and Taiwan. The
World Economic Forum Financial Development Re-
port 2012 ranks India 17th of 62 nations surveyed in
life insurance penetration, 52nd in non-life insurance
penetration and 50th in real growth of direct insur-
ance premium – well below its potential and far below
smaller economies.
If one splits the penetration into segments of life and
non-life the performance of “Life” at 4.4 per cent
looks good. But one must remember that this is an
economy with virtually no social security coverage
and no pension benefits for those outside the organ-
ised sector. A 2008 survey by the National Council for
Applied Economic Research with Max New York Life

shows that while 78 per cent of the people were aware
of life insurance ownership of products was only 24
per cent. To get a perspective of the scale of uncov-
ered population, one must remember that less 11 per
cent of the total workforce is part of the organised
sector. The Economic Survey puts the total workforce
in the organised sector at 28.7 million. The unorgan-
ised sector or the informal economy accounts for over
90 per cent of workforce and about 50 per cent of the
national 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 2012

Secondly, much of the life insurance penetration is
driven by the salaried and the self-employed, who are
influenced to a large extent by tax incentives offered
in return for investment in insurance. As India delib-
erates on the necessary tax reforms and works out its
approach for a new Direct Tax Code, there is the likeli-
hood of many exemptions being weeded out and many
made taxable. The levels of penetration in “Life” are

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 numbering
over 26 million units. India is also home to over 15
million small retail outlets. Yet insurance penetration
is a measly 0.7 per cent. India does barely better than
Pakistan and Bangladesh and ranks lower than Sri Lan-
ka and Malaysia and worse than its peers in the BRICs
group – that is Brazil, China and Russia.
Only 0.2 per cent of the population is estimated to
be covered by medical insurance. The Planning Com-
mission estimates that nearly 300 million people in
India have health cover, but these are those covered
by central government and employees’ state insurance
schemes. In a population of 1210 million, barely 55
million are reported to have paid for private health
insurance. More importantly, the present structure of
health insurance covers only hospitalisation and out
of pocket expenses are borne by individuals, trigger-
ing spasms of downward mobility for the families of
those affected by any critical illness.
The National Sample Survey data show that educa-
tion and health are increasingly being privatized, and

even among the poor, medical expenses account for
an increasing share of private expenditure. Since that
privatization of health and education will continue in
the process of reforms, medical insurance coverage
needs to increase, not only to cover hospitalization, but
out-patient treatment too.
Poor penetration of insurance is accompanied by low
density – measured in US dollars. This is best illustrat-
ed by the absolute numbers in insurance spend across
sectors in India. Currently, the density of insurance in
India is US $ 64.4. That is almost one-tenth of the
world average of $ 627.3. India does poorly even in
comparison to its peers in the BRIC nations – density
in Brazil is over five times at $ 327.6, over four times in
Russia at $ 296.8 and three times that of India in China
which has a density of $ 158.4.
Again, when the overall density is spliced for segments,
the picture worsens. Its performance in Life segment is
at $ 55.7 which is low when put in context of nations
with and without social security. Total premium col-
lected is around Rs 3 trillion. In Non-Life, the numbers
are absolutely shocking. The GDP of India is expected
to touch Rs 101 trillion this year. Contrast this with
the total premium collected for non-life coverage: Rs
43,841 crore for the last year. At a density of $ 8.7 –

compare to $ 52.9 for China - clearly the economy is
under insured, leaving the political economy vulnera-
ble to shocks.
Government spending on public health is abysmal and
nearly 80 per cent of health expenditure is borne by
private pockets. A World Bank study states that barely
7 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 health
care costs. It is well known that a single health crisis in
a family can transport the household into poverty. This
can only be mitigated through insurance cover.
The reality of the health care structure is that over 80
per cent of doctors, 49 per cent of the beds, 60 per
cent of the in-patient care and 78 per cent of the am-
bulatory services are private. There is no running away
from the fact that the government will have to part-
ner with the private sector. Private providers running
small family clinics and hospitals and hospices run by
charitable institutions are a dominant feature of the
India health care apparatus. Also, government spon-
sored health insurance schemes are enrolling private
providers for in-patient care these need to be expanded
to accommodate ambulatory care, which accounts for

two thirds of the critical Out-of-Pocket expenses.
With barely 9 hospital beds per 10,000 people vis-a-vis
the WHO norm of 30 per thousand, India is grossly
underequipped in terms of capacity to provide health-
care. The investment for this cannot come without
active participation of health care insurance. India
has had health care since 1950s, when the employees
state insurance scheme was launched, followed by the
central government health scheme. But the expansion
of health care outside the ambit of organised sector
employment has been poor. If at all there has been
an effort, it is in the creation of policy for those liv-
ing below the poverty line but creation of policy has
not been matched by provision of facilities. Average
hospitalisation costs are rising and spending on public
health, which is barely over one per cent of GDP, has
been precluded by resource scarcity.
Globally across income strata, it is well established that
universal health care can only come in with a mix of
private funded insurance driven by tax incentives and
government funded schemes. A number of developing
countries like Argentina, Brazil, South Africa, Kenya,
South Korea, Iraq, Iran, Thailand and Sri Lanka have
evolved single-payer mechanisms to facilitate near uni-
versal access to healthcare.

India has the opportunity to innovate and create the
necessary capacity for universal health-care through an
appropriately priced model of insurance that involves
private service providers partnering the government.
Insurance creates the necessary mechanism to balance
the 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 is
one of increasing public expenditure on health, the ar-
gument being that out-of-pocket (OOP) expenditure
on health-care is too high. “Those who access ‘free’
government health services are expected to purchase
medicines from private pharmacies; pay user fees for
laboratory tests and of course the ubiquitous infor-
mal fees. Those who use the private services of course
have to pay considerable amounts. Significantly, those
who are insured also do not get full protection. While
their OOP payments are reduced, they still have to
pay 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 provides

coverage of Rs 30,000 per household per year to unor-
ganised sector BPL families. 75% of the premium of
Rs 750 per family is paid by the Centre and the remain-
der 25% by States. State governments also have their
own insurance schemes - Arogyasri Yojana (Andhra
Pradesh), Kalainger Insurance Scheme for Life-Saving
treatments (Tamil Nadu), Suvarna Arogya Surakhsa
Scheme (Karnataka) and Mukhya Mantri BPL Jeevan
Rakhsa 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 OOP
expenditures are still so high.
Let’s now turn to the agriculture sector. Agriculture is
India’s largest private sector in terms of employment
accounting for nearly 60 per cent of the working popu-
lation, or six of ten working Indians. Nearly two-thirds
of these have little or no access to credit and barely a
fraction of them have engaged in crop insurance.
Crop insurance was first introduced in the eighties by
the 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 responsibility
of implementing the idea of agricultural insurance. In
the years since the expansion of crop insurance, this

government-led initiative has led to the coverage of
nearly 10 million hectares and over eight million farm-
ers. That the government’s initiative has managed to
totally cover only 180 million farmers in ten years re-
flects the chasm between need and capacity.
Typically, crop insurance coverage has followed those
who have access to bank credit. The wide gap can be
assessed from the details: India has 182 million hect-
ares of cultivable land, of which, the net sown area
is 140 million hectares, while total cropped area (in-
cluding multiple crops) is 193 million hectares. Nearly
half the cropped area is rain-fed or dependent on the
vagaries of the weather. As against this, in 2011-2012,
total coverage of crop insurance has been barely 10
million hectares.
The government has many schemes, including weath-
er-based-crop insurance, modified national insurance
scheme, bio-fuel tree insurance, cardamom plant and
yield insurance, coconut palm insurance, potato crop
insurance, pulpwood tree insurance, rain-fall insurance
for coffee growers, rubber plantation insurance and
weather insurance. However, these have yet to reach
the critical mass and that would require both expan-
sions in capacity and competition. The fact that the
turnover of the AIC has shot up by seven times from

Rs 369 crore to Rs 2577 crore and net worth has in-
creased eight times to Rs 1596 crore in March 2012
shows the demand for such insurance and the scope
for expansion.
Indian agriculture suffers from poor returns and vi-
ability at the best of times. Ground conditions are
difficult, input costs are rising and yield per hectare
is poor when compared to global agri producers. As
agriculture adopts more modern practices and as the
ground conditions – particularly water – worsen, the
need for insurance and the variety of insurance will
only expand. The capacity expansion required cannot
be sustained by government companies alone and will
require private insurer participation.
The expansion of insurance will not only make new in-
novations available – and these can be mandated in the
guidelines – but also bring in its wake substantial ex-
tension advisory services to enable farmers to improve
yield as also to shift to demand-led cropping patterns.
These forward and backward linkages in methods of
cropping, in nurture, in choice of timing and of crops
as also new technology will help farmers align output
to 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 retail

and processing this will be a major enabler. Agriculture
accounts for less than a sixth of the national GDP and
is host to six of ten working persons. Insurance is one
enabler that will help lift the mass from depravation
through induction of technological assistance that will
follow coverage.
To this litany of problems, let us add a quote from
the recently-finalized 12th Plan (2012-17) document.
“Insurance premia account for less than 1 per cent of
GDP, which is only about a third of the international
average. The organised financial sector does not reach
out 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 of
under-supply of financial services. It can be nobody’s
case that the Indian economy has lower inherent risks
than others, or that life cover is any less important. It
is rather that costs of providing cover and assessing
claims are currently so high relative to the cover itself
that either premium-to-cover ratios become exorbitant
or appropriate insurance products are simply not creat-
ed. High transactions costs relative to size of accounts
are also the main reason for low banking coverage and
this is compounded by high risk perception of banks,
in part because of lack of insurance. Agriculture and

other forms of MSMEs are particularly ill-served and
the situation has in fact deteriorated in some ways over
the last two decades because of problems afflicting the
cooperative banking sector.”
This should establish the case that the present state of
insurance and insurance coverage is hardly satisfactory.
The question is, what does one do about it?


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 one
of financial inclusion. India has shockingly low levels
of financial inclusion. World Bank studies rank India
poorly on many indices of financial inclusion. Only 35
per cent of Indians have a bank account versus the
global 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 in
the nineties examined the premise of Schumpeter that
financial system can promote economic growth. Using
data for 20 years across 80 countries the duo estab-
lished that various measures of the level of financial
development are strongly associated with real per capita
GDP growth, capital accumulation and improvement
in efficiency with which capital is employed. They also
argued that “predetermined component of financial
development is robustly correlated with future rates of
economic growth.
The World Economic Forum Report on Financial De-
velopment 2012 ranks India 46th out of 62 countries

surveyed on market penetration of bank accounts, 36th
on bank branches, 34th on financial system deposits to
GDP, 43rd on the ratio of private credit to GDP, 35th
on bank deposits to GDP. In terms of overall financial
development it ranks 40th in 62 nations.
A more developed financial system naturally results in
a 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 inclusive
systems the poor are forced to dip into their future
wealth or savings for education, health care or entre-
preneurial ventures. The persistence of poor financial
inclusion contributes to not just poorer growth but is
accompanied by inequality.
In a country with over 900 million mobile subscrib-
ers India has 624 million savings bank accounts (RBI
2011). If we de-dupe the data for two or three accounts
per person the picture of access to banking could be
quite stark. What is more interesting is that in 2011 In-
dia had 121 million ‘borrowal’ accounts. Nearly 60 per
cent of the work force is employed in agriculture and
two 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 frill

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 poor
make 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 and
medical contingencies are a major reason for this.
Contrary to perceptions, those left without access or
outside the ambit of financial inclusion are not finan-
cially illiterate. And this has been well established in
contemporary literature (Portfolios of the Poor/ Col-
lins and others) Indeed quite to the contrary. Even
those who live at below poverty levels are not known
to spend every rupee they earn. They do manage even
if not successfully -- to save at home, to become part
of community savings mandals, join neighbourhood
kitty 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 of
life. The imperative for using more than just banks to
push financial inclusion has never been more clear and
critical.

In 2002, the Insurance Regulatory and Development
Authority mandated that all insurers doing business in
India 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 the
fold of coverage and expand financial inclusion. Com-
panies are obliged to bring 7 per cent of the new life
insurance policies – rising to 20 per cent in ten years
– from rural areas and face sanctions for not meeting
quotas
Interestingly, because the legislation mandates partici-
pation by all insurers there has been a lot of innovation
and experimentation with products and distribution
channels. The 14 private life insurers have developed
28 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 introduction
of Micro Insurance Regulations by IRDA in 2005. In
compliance with IRDA Regulations, in 2010-11, all ex-
cept one of the private players fulfilled, and in many
cases exceeded, their rural sector obligations while all
of them fulfilled their social sector obligations through
a range of schemes targeted at the lower income seg-

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 fraction
of the adult populace is covered by micro insurance
whereas the total market just for the lowest income
populace is estimated to be around 400 million. It is
well recognised that at the lowest income levels any
illness, loss of livelihood or life could send the fami-
ly into absolute penury. The NCAER New York Max
Life survey found that a large majority of Indians – 81
per cent – do not and are unable to save for the long
term and only 4 per cent of the households surveyed
stated they could survive for more than one year after
the loss of primary household income.
The vulnerable need coverage and cannot be covered
without expansion of coverage and that necessarily
means higher capital investment. Since micro insur-
ance and social products and low ticket in nature the
companies would take longer to break even and there-
fore may not be able to invest beyond a factor without
breaching solvency norms. Higher FDI will definitely
enable infusion of capital and expansion.
Often the debate on risk mitigation for entrepreneurs
is mistaken as an instrument for large enterprises and
entrepreneurs. Fact is the need for risk mitigation is far

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 eight
per cent of the GDP and over 40 per cent of industrial
output.
Insurance coverage for these enterprises has been pre-
cluded both by reach and costs. Already strapped for
capital these businesses have to hoard investible capital
and expansion for that uncovered risk. The need to
be protected against negative outcomes in an environ-
ment where reforms are an on-going and where risks
will only rise cannot be overemphasised. Without in-
surance the micro, small and medium enterprises have
to find capital to bear the risks. Insurance will enable
them to lower the risk of high capital costs and allow
firms to allocate capital more efficiently and to the core
businesses.
Given the context of sickness among MSMEs as evi-
denced in the recent reports of closures in the textile
sector, it is imperative that coverage be expanded to
enable small entrepreneurs and family retail managed
risks. Insurance will also foster entrepreneurial atti-
tudes, innovation, dynamism and strengthen compe-
tition among the MSMEs. It has been well established
that insurance can help small businesses assess and

price risks, reduce the financial repercussions of vol-
atility, incentivise efficiency and loss reduction and of
course 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, GoI
constituted a Consultative Group on Micro-Insurance
to examine existing insurance schemes for rural and
urban 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 capital
requirements, licensing, monitoring and review, etc.
The report of the consultative group has brought out
the following key issues: Micro-insurance is not viable
as a standalone insurance product. Micro-insurance has
not penetrated rural markets. Traditional insurers have
not made much headway in bringing micro-insurance
products to the rural poor. (In addition, the Commit-
tee feels that micro insurance has not penetrated even
among the urban poor)....A study commissioned by the
United Nations Development Programme (UNDP)
titled “Building Security for the Poor - Potential and
Prospects for Microinsurance in India” states that 90%
of the Indian population - some 950 million people -

are not covered by insurance and signify an untapped
market of nearly US$2 billion. This enormous “miss-
ing market” is ready for customized life and non-life
insurance, but first, serious mismatches between the
needs 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 growth
of the micro-insurance industry in India, capturing the
concerns of different stakeholders as indicated below
: (i) There are specific reasons for low demand for in-
surance in spite of intense need. Suppliers have their
own concerns which helps to explain why there have
been so little efforts at market development. Conse-
quently, the rural market is characterized by limited
and inappropriate services, inadequate information
and capacity gaps. (ii) There are challenges in prod-
uct design, which has resulted in a mismatch between
needs and standard products on offer. Efforts at prod-
uct development/diversification have been limited. (iii)
Pricing, including willingness to pay and the availability
of subsidies, influence the market. In the absence of
a historical data base on claims, premium calculations
are based on remote macro aggregates and overcau-
tious margins. Building and sharing claims histories can
help in aligning pricing decisions with actuarial calcu-
lations, thereby reducing prices. (iv) Difficulty in dis-

tribution is one of the most cited reasons for absence
of rural insurance. The high costs of penetrating rural
markets, combined with underutilization of available
distribution channels, hinder the growth of rural in-
surance services. This adds to costs, both, managerial
and financial. Like inclusive credit, inclusive insurance
is expected to be a “low ticket” business, requiring vol-
umes for viability. (v) Cumbersome and inappropriate
procedures 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.”


Section 4: Additional Positive Externalities of
Liberalization
Every year, 11 million graduates pass out of India’s
colleges and join the workforce. By 2015 this number
is likely to touch 15 million. Indian middle class is vari-
ously estimated at around 150 million households with
incomes of Rs 90,000 to Rs 5 lakh. This bankable class
will need a choice of long-term instruments to pre-
serve their earnings, convert it into wealth. This group
will also have a formidable impact on the demand for
insurance – both Life and Non-Life. The needs of the
higher working age populace and higher dependent age
population will need to be accommodated by creating
variety of instruments and capacity. If India has to
channelize this demographic dividend it must put into
place necessary mechanism.
In India, nearly 41 per cent of financial savings find
their way into bank deposits and 26 per cent into tax-in-
centivised life insurance schemes. There is a huge need
for long term savings instruments – pension, insurance
and hybrids – which can only come with expansion of
the financial sector. Secondly, historically, there have
been guaranteed returns in government-mandated sav-
ings instruments. However, increasingly, those fixed
returns will disappear and alternative savings instru-

ments have to be found.
On the other hand, India needs to enable funding
of government programmes, infrastructure, housing,
backward integration of agricultural output with pro-
cessing, small and medium sector industrial expansion
and creation of capacity in various sectors. This re-
quires improved financial inclusion and better chan-
nelizing of savings. With reforms and fiscal deficits
expected to decline, it can be presumed that the gov-
ernment will no longer pre-empt these savings. India
needs to build an engine for accumulation and efficient
allocation 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 that
India faces and the many advantages that expansion of
insurance 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 well
established. It is also important to emphasise the spe-
cifics and the beneficial outcome of higher investment
in the sector.
The government of India currently borrows nearly Rs
1600 crore every calendar day to fund its operations.
It needs a deeper long-term debt market to even out

costs and volatility in liquidity conditions. It current-
ly is over-dependent on bank deposits. This typically
means banks borrow for the short term and lend long
term to the government. This leads to liquidity hiccups,
influences inflation and raises the cost of borrowings.


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 FY11

Very simply, there is a need for expansion and com-
petition in the financial system to deliver reach and
efficiency. One of the major benefits of expansion –
be it entry of new players or through increased capital
investment --is the intensification of competition be-
tween various arms of the financial sector. This pro-
cess is best illustrated in the expansion of markets first
in the United States and then in other countries includ-
ing developing economies.
The 2010 Annual Report of the American Council of
Life Insurer’s reports that Life insurers in the United
States managed $ 5 trillion in assets in 2009. Of this
nearly half or $ 2.6 trillion were invested in fixed in-
come securities including bonds. These are attractive

for them for they offer predictable returns and entail
low risk for the insurers. The bonds are issued by or-
ganisations looking for long term financing. These
include the US Treasury, federal government bodies,
state and local governments. These form the robust
frame upon which the long term debt market rests and
finances different levels of government in their proj-
ects and programmes.
India needs to create a similar backbone of long term
debt to fund and manage its expenditure. As of now
central and state governments together spend over Rs
5 lakh crore, or roughly $ 100 billion, on social sec-
tor programmes. This expenditure will only rise and
the government cannot sustain this and the projected
spend on infrastructure by depending on the banking
to aggregate savings. A wider insurance market will en-
able aggregation of long term debt. The present chal-
lenges present an opportunity for the government to
dovetail its social intent into economic planning but
enabling the widening of insurance and ensuring out-
comes through guidelines.
India is ranked 59th in the Global Competitiveness
Ranking of the World Economic Forum for 144 coun-
tries. Once ahead of Brazil and South Africa, India
now trails them by some 10 places and lags behind

China by 30 rungs. India is penalised principally for the
infrastructure deficit – in transport, energy and ICT –
and is ranked 84th on the list. Indian business has cited
the lack of infrastructure as the biggest hurdle to doing
business – ahead of other issues.
India needs, according to the 12th Plan estimates, close
to $ 1.2 trillion on infrastructure and faces a gap of over
$ 300 billion in funding. This demands channelizing
of long term savings and requires widening and deep-
ening of insurance coverage. Currently a major share
of infrastructure funding comes from LIC, bonds and
bank deposits. For historical reasons nearly 41 per cent
of financial savings in the country find their way into
the safe haven of bank deposits as savers are faced
with 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 more
in tune with the funding requirement of infrastructure.
Banks, as discussed, face asset liability mismatch issues
because their depository base is short term against
long term nature of infrastructure loans assets. It is
therefore essential that some regulatory changes are
given effect so that a greater participation by insurance
companies in infrastructure funding mix is ensured.”

And this has been well established in the experience
of many countries in the Asia-Pacific region. Opening
of foreign direct investment in the insurance sector
has helped South Korea, Taiwan, Mexico, Malaysia and
China deepen the bond markets to create large long
term capital pools to finance infrastructure develop-
ment. And the performance and rankings of these
countries for infrastructure is evidence of the success.
At a different level, as India embarks on building the
necessary foundation for double digit growth – invests
in infrastructure across sectors – it will be critical for
Indian 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 often
missed out that expansion of insurance creates em-
ployment well beyond the tier I and tier II towns. As
insurance penetrates further into the tier III, IV and V
towns it boosts and nurtures both direct and indirect
employment. Insurance not only creates jobs for pro-
fessionals such as brokers, insurance advisors but also
for underwriters, actuaries and subsidiary services.


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
agents

Source: Life Insurance Council of India
Since 1999, the liberalisation of insurance – with the
opening up of the sector to joint ventures between In-
dian private sector and foreign insurers – the sector has
triggered over 3 million quality jobs. The number of
direct employees has grown from 123,000 to 248,703
between 2000 and 2012 while individual agents has
grown three-fold from 714,000 to 23,45,601 –nearly
50 per cent of them in the private sector.


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
Year

Sources: IRDA Annual Reports accessed from www.
irda.in
Increase in capital and further investments – through
the raising of the FDI cap – will trigger creation of
further jobs not just in the insurance sector but also in
other sectors as the beneficial effect of risk mitigation
kicks in. As we know India produces over 11 million
graduates – a number that is expected to rise to over 15
million in the coming years – who will seek quality em-
ployment. Growth in insurance has already generated
enormous 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 the

creation of a pan India capacity in professionals quali-
fied to deal with financial services will also enhance the
widening of financial inclusion across the geographies
enabling the penetration of other financial products
ranging.
For an economy estimated to touch Rs 101 trillion in
2013, the paid up equity capital of insurance compa-
nies – both for life Rs 23662 Crore and non-life Rs
5684 crore – is grossly inadequate. As the economy
grows and the population rises there will be pressure to
raise capital to meet with the required solvency norms
of expanded coverage. If India is looking at higher
penetration that would require higher number of poli-
cies – both Life and Non-Life – to be written up which
means 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 dependent
age group of 60-plus. It is well recognised that demo-
graphic shifts lead to new segments that need to be
served. While the new earners and savers will look for
instruments to facilitate their consumption and invest-
ment. Given the rise in life expectancy – Indians now
will have an expectancy of nearly 80 years which is two
decades of non-earning life -- those in the dependent

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 as
also those dependent. The demographic dividend in
India will not last beyond 2030. Beyond 2030 or 2035,
India will begin to grey. This greying population and
its medical needs need to be catered to. Accordingto
one of the estimates made by IRDA in order to in-
crease insurance penetration from the existing level of
4.7% to around 8% an additional capital injection of
Rs. 40,000 crore is required.
Given the competing claims on investible resources in
India there is no doubt the capital must be deployed
by foreign partners in return for fair value in equity.
China which has allowed 50 per cent FDI in insurance
provides a stark comparison. Insurance companies in
China – for purposes of illustration given the context
of 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 rupees
compared to India insurance companies which have Rs
15.12 trillion in Assets under Management.

Section 5: The Half-Hearted Liberalization

Before 1956 for Life and before 1972/73 for general
insurance, the private sector did exist in the insurance
sector. 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 levels
of customer satisfaction, reflected in a large number
of 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 insurance
companies. In other words, the benefits to consumers
from competition and efficiency are yet to materialize.
The threshold level of 26% is itself a hang-over and
artificial. In other sectors, such equity levels have been
gradually been dispensed with. In any event, such ar-
tificial thresholds can be circumvented. There is no
logical reason why the cap should not be increased to
51%, or even 100%.
The proposal to hike foreign investment to 49 per cent
from the present 26 per cent is enveloped in a fog of
illogical arguments. The primary thesis is that opening
up the sector will make it vulnerable to external shocks.

Truth is the insurance industry is profoundly different
from other financial services. It is also regulated more
rigorously. The International Association of Insurance
Supervisors had noted in June 2010 “for most classes
of insurance there is little evidence of insurance either
generating or amplifying systemic risk, within the fi-
nancial system itself or in the real economy.” Indeed
some 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 of
capital. This is best proven by the experience in the
banking sector. Foreign investment level in banking is
74 per cent and there are fully foreign owned banks. If
there are any doubts or concerns these should be lay-
ered in the guidelines on deployment of the premium
which 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 comprehensive
changes in the archaic laws governing the insurance
sector so as to make the legislative framework capable
of facilitating insurance business in the current eco-

nomic scenario, nevertheless have apprehensions on
the implications of some of the policy issues proposed
in the amendment Bill. The Committee feel that the
suggested policy stance of enabling a greater role for
foreign capital in the insurance sector, may not neces-
sarily have the desired impact in view the experience of
its limited role thus far in terms of facilitating invest-
ment in infrastructure, deepening insurance accessibil-
ity for the poor and also in developing products suited
as a means of providing social security to the Indian
masses at large. On the other hand, increased role of
foreign capital may lead to the possibility of exposing
the economy to the vulnerabilities of the global market
by way of likely inheritance of unsound balance sheets
and financial health of the foreign partners through
joint ventures and subsidiary routes, flight of capital
outside the country and also endangering the interest
of the policy holders.” Surely, an inability to formulate
regulation and guidelines should not be taken seriously.
By the same token, nothing should have been opened
up to FDI. Indeed, there are, or can be, potential costs.
However, the benefits far outweigh the costs, real or
imagined.
India has believed in gradualism in opening up sectors.
It is an approach that has worked. The move to allow
26 per cent foreign ownership in insurance has paid

dividends. It has helped expand coverage, induct new
innovations, spur competition and has created over 3
million new jobs. It is time for India to take the next
step and hike the limit to 49 per cent. It will only be
in keeping with global practice. Currently Korea, Tai-
wan and Mexico allow 100 per cent foreign ownership,
the cautious Malaysia allows 70 per cent, Philippines
51 per cent and even China allows 50 per cent foreign
ownership in insurance.
There are some who argue that the additional capital
required can be raised from domestic savings. This is
a theoretical possibility. Fact is this isn’t practical. The
reality as of today is that based on IRDA estimates the
capital required over the next five years works out to Rs
61,200 crore. India’s insurance market has experienced
impressive 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 least
Rs 40,000 crore ($7.27 billion) to achieve an insurance
penetration level of 8% of GDP. However, over the
entire last decade Indian promoters were able to invest
about 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 – is
a tall order.

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 service
providers and for consumers. The break-even phase is
influenced by the quality and quantity of capital invest-
ed. Those in Life for instance have lost over $ 4 billion
in the past decade. Indeed, nine of the Nine of the 23
private sector life insurers lost money in the year ended
in March. In the Non-Life segment the insurers have
cumulatively lost nearly $ 6 billion and 13 private sector
insurers 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 also
funding their insurance business without breaching the
20 per cent net worth norms on investment in insur-
ance. Domestic companies who are already bearing the
burden of providing for 74 per cent of the equity are
already constrained. Companies could go to the capital
market but that raises issues: quality of paper, appetite
for such large issues in the Indian capital market and
finally the decision to dilute or issue equity is best left
to investors. The capital could also be raised as debt to
fund equity but there is the cost factor.
In sum, a reluctance to open up insurance suggests a

lack of faith in the regulatory structure. Whatever may
be said about other sectors, in the financial sector, the
quality of Indian regulation is excellent and there is no
reason to presume that regulation will fail.
Mr. Yashwant Sinha, Chairman of Parliamentary
Standing Committee on Finance had this to say as Fi-
nance Minister in 1999 when he opened the sector to
26 per cent FDI: “Mr. Deputy-Speaker, Sir, the world
has progressed. There are all kinds of insurance prod-
ucts which are being marketed in various countries of
the world, which are unfortunately not yet available in
India. It is our belief that with this opening up, it will
be possible for those insurance products to come up
in this country and provide both depth and weight to
the market…through a larger coverage in the insur-
ance sector, it is possible to cover a larger segment of
the 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 be
insurance companies which will provide them pension
facility. They can make small contribution. That will
come in handy when they retire. Now this is the kind
of social security which will become possible once the
insurance sector is opened up, and that is why we are
putting social service, social sector obligations even on

the newer companies.” Every argument he made then
is more valid today. And the achievements of these ob-
jectives require capital and ownership in the expansion
of insurance. And all those arguments apply equally
well to 49% and even 100%.
The proposal to enhance FDI limits in insurance from
26 per cent to 49 per cent promises wider financial in-
clusion, better aggregation of savings and a vital boost
to creation of long term assets. There is absolutely no
room for dispute that India will need to expand insur-
ance coverage if it is serious about its ambitions of
8-plus per cent GDP growth.
Insurance coverage is about outcomes but is more
about the enablers that it promotes in the processes.
The critical importance of insurance in an economy is
well recognised. Indeed recent research has established
a strong relationship between the development of in-
surance sector and economic growth. As a factor of
efficiency insurance is a necessity for small businesses
and agriculture. To start with both entrepreneurs and
farmers without insurance coverage are forced to hold
capital to meet with uncertainty. Insurance can pro-
vide coverage and obviate need for additional capital.
Insurance can also provide coverage on credit. Given
the embedded risks manufacturers may forego lucra-

tive markets but transport insurance helps reach new
customers. 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 for
higher yields and incomes. When public policies enable
coverage 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 vital
political importance. Insurance enables individuals and
institutions to protect economic interests by pooling
the risk of loss or catastrophe within communities and
thereby 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 in
better systems in risk assessment. The processes that
will follow –new payment systems, back-end extension
services in agriculture, aggregation of reach for health
coverage, risk assessed entrepreneurial innovation and
predictability in non-life insurance – will generate em-
ployment and promote growth. Above all the channel-
izing of these savings will enable India to shift from
the current dependence on bank deposits to long-term
capital for funding infrastructure that it so desperately

needs.
Here is a quote from the 12th Plan Document. “The
steps taken to liberalise FDI, especially in areas where
there 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 liberalisation
in FDI in other sectors, such as insurance, and before
that telecom....The government has been considering
steps to increase the scale of FDI permitted in the
insurance sector but a lack of political consensus has
held back change.” This clearly suggests that there is
no economic or rational reason for not increasing eq-
uity limits on FDI in insurance. The constraint is lack
of political support, which suggests that one should
do a better job of communicating economic rationale
to Parliament.


Section 6: The Half-Half-Hearted Liberalization
Proposal
There is yet another half-half-hearted liberalization
proposal that is floating around. This is the idea that
foreign equity in Indian private insurance JVs should
be increased by allowing FIIs to invest 23% with new
equity, 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 the
Indian insurance industry. There are foreign share-
holders in Indian insurance JVs. This entry was based
on certain principles and assumptions about policy.
Though the FII mode doesn’t quite violate the letter of
the law, it violates the spirit of the law and principles
of contract. Second, FIIs have limited experience in
the insurance industry. This third-party entry of FIIs
introduces entities who are interested in short-term
windfall gains (when IPOs are launched), rather than
the longer-run. This is not a normative statement. It
is 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 of
those who are interested in longer-term, that is, those
who have borne the costs of regulatory and economic
uncertainty. Third, existing ventures have pre-emp-

tion rights, that is, current shareholders have the right
to buy the shares of a shareholder who wants to opt
out. FII is not classified as fresh equity. Therefore, a
domestic 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 argued
FII inflows are volatile and FDI should be preferred
over FII. In this segment, the Chairman of IRDA has
specifically stated that FII inflows are volatile and not
desirable. Sixth, both foreign and domestic investors
in 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 JV
agreements often have clauses that do not allow oth-
er foreign investors to take up equity. If the idea is
to increase capital inflows, this is therefore unlikely to
have much impact. Seventh, existing JV agreements
reflect the intent of foreign partners to increase equity
to 49%, when the policy and rules allow this. That is,
foreign insurers who have entered expect the cap to be
progressively raised and this expectation was implicitly
encouraged by the government. That’s indeed the way
it has worked for investment banks and asset manage-

ment companies, businesses which are closely allied to
insurance. Eighth, if the intention is to increase the
confidence of the foreign investment community in
India as a destination, this move will be counter-pro-
ductive. It will send a negative signal that India is a
long-term market that needs capital.
Therefore, this half-half-hearted liberalization measure
is a bad idea. Instead of muddying waters, one should
stick to the original plan of hiking FDI caps from 26%
to 49%, and perhaps even 100%.


About the Authors:

Bibek Debroy is an Indian economist, who is
currently a Research Professor at the Centre
for Policy Research, New Delhi. He was ed-
ucated at Presidency College, Calcutta, Delhi
School of Economics and Trinity College,
Cambridge. Prof. Debroy has taught at Presidency College, Cal-
cutta, the Gokhale Institute of Politics and Economics, Indian
Institute 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 Finance
Ministry (Government of India), Secretary General of PHD
Chamber of Commerce and Industry and Director of the Proj-
ect LARGE (Legal Adjustments and Reforms for Globalising
the Economy), set up by the Finance Ministry and UNDP for
examining legal reforms in India. Between December 2006 and
July 2007, he was the rapporteur for implementation in the UN
Commission on Legal Empowerment for the Poor. Prof. Debroy
has authored several books, papers and popular articles, has been
the Consulting Editor of some of the most prominent financial
newspapers in the country and is now Contributing Editor with
Indian Express. He is a member of the National Manufacturing
Competitive Council. He is also a member of the Mont Pelerin
Society.


Shankkar Aiyar is the author of Acciden-
tal India: A History of the Nation’s Passage
through Crisis and Change. This best-selling
book digs deep into Indian history to analyse
the cause and catalysts of seven transforma-
tive events to demonstrate that it is crisis and
serendipity – not policy or political purpose –
that propels the India Story. Accidental India has won praise from
academics, 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 on
how politics impacts governance, the economy and financial mar-
kets. As a journalist for nearly three decades, he has won awards
and 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, Smoking
Guns, is part of an anthology on Indian journalism. He has been
a Wolfson Chevening Fellow at Cambridge University where he
studied the Lifecycles of Emerging Economies. Shankkar Aiyar,
50, is currently researching the linkages between demographics,
globalisation and conflicts.


List of Indicus research papers
1. “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 Roychowdhary
4. “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 Ghosh
5. “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, 2010
6. “India Labour Report 2009 – The Geographic Mismatch
& A Ranking of Indian States by their Labour Ecosystem”
jointly with Bibek Debroy, TeamLease Services, 2010
7. “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 2010
9. ‘Small States, Large States’, jointly with Sumita Kale, Ana-
lytique, Vol.VI, No. 4, Bombay Chamber of Commerce and
Industry, March 2010


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 Law
11. “Indian Steel Industry, Public Enterprises, Government
Policy and Impact On Competition for the Competition
Commission of India”, jointly with Payal Malik and others,
January 2009
12. “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 2009
13. “India Labour Report 2008 – The Right to Rise: Making In-
dia’s Labour Markets Inclusive”, jointly with Bibek Debroy,
TeamLease Services, 2009
14. “India’s Borderless Workforce”, jointly with Payal Malik,
White Paper, Manpower India, 2008
15. “What Ails VAS in India? Latent Markets and Market Fail-
ures” jointly with Sumita Kale, Occasional Paper, Internet
and Mobile Association of India, April 2008
16. "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. Inst
17. “A Stable Regime For The Rapid Growth Of E-Payments”,
Occasional Paper, Internet And Mobile Association of
India, May 2007
18. Contributor to “The Oxford Companion to Economics in
India”, Kaushik basu (Ed.), Oxford University Press, No-

vember 2007
19. “State of the States”, jointly with Bibek Debroy, India To-
day, 24 September 2007
20. “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, 2007
21. “Health Infrastructure in Rural India”, jointly with Siddhar-
tha Dutta, India Infrastructure Report, 3inetwork, chapter
11, pg-265-285, 2007
22. “Exclusive growth – Inclusive inequality”, Center for Policy
Research, Working Paper, 2007
23. “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, 2007
24. “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, 2006
25. “Socio-economic Performance of Constituencies: A
Response”, Economic and Political Weekly, Vol. 41 No. 36
September 09 - September 15, 2006
26. “Social Infrastructure: Urban Health And Education”,
Chapter 11, page 232-253, India Infrastructure Report,
3inetwork, 2006
27. “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 Org

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,
2006
29. “Income Differentials and Returns to Education” jointly
with Mridusmita Bordoloi, Economic and Political Weekly,
Vol. 41 No. 36, September 09 - September 15, 2006
30. “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, 2006
31. “Economic Freedom for States of India 2006,” jointly with
Bibek Debroy, Rajiv Gandhi Institute for Contemporary
Studies and Friedrich Naumann Stiftung, March 2006
32. “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, 2005
33. ‘More Rural Roads = Fewer Villages’, Energising Rural
Development through 'Panchayats' in Bibek Debroy (Ed.)
Energizing Rural Development through 'Panchayats', Aca-
demic Foundation, 2005
34. “The Need for Structural Reform in Indian Civil Aviation”,
Working paper, Liberty Institute, 2005
35. “Public & Private Garbage Removal Services in India:
Impact on the Environment”, jointly with Amar Gujral, and
Aarti Khare, Working Paper, Liberty Institute , 2005
36. “Private Response to Poor Public Provision for Household
Water”, jointly with Aarti Khare, Working paper, Liberty
Institute, 2005
37. “Results of an NSSO Survey of Urban Water Access:

Implications for Policy” jointly with Peeyush Bajpai, ch-12,
Pg-290-295, India Infrastructure Report 2004, 3iNetwork,
Oxford University Press, New Delhi, 2004
38. “How and Why of Ranks,” jointly with Bibek Debroy, State
of the States 2004, India Today, 2004
39. “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, Delhi
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