The government's unveiling last week of a revival package for the insurance followed by a hike in FDI limit for the sector has no doubt injected hope into an ailing industry, which has the potential to contribute much more to the economy and benefit a larger chunk of the population. But everything hinges on the implementation.
The reforms in the fund-starved insurance and pension sectors are important for channelising long-term public savings to the infrastructure sector, for which the government envisages investments of $1 trillion in the next five years.
The capital infusion in insurance is also needed for the much required growth of the sector and enlarging its base. India currently does not have enough capital to boost this sector. The current reform, if implemented, can bring in close to Rs 30,000 crore required for the expansion of the insurance sector in the country in the next five years.
Besides, insurance penetration in India is still in its nascence. Twelve years after it was opened up for private competition, just a tad over 4 per cent of the population invests in insurance products. Analysts feel that unless insurance penetration is raised in the country, growth in the sector will be subdued.
Economists also opine that the contributions of the insurance and pension sectors can enhance overall economic growth on a sustained basis. India's economic growth has fallen to a nine-year low of 5.5 per cent of late.
According to insurance regulator IRDA, the sector presently constitutes around 4.5 per cent of the GDP. Throwing it open to foreign participation can help the sector grow at a peg of 11-12 per cent per annum.
"For that big a growth in this sector, it is important to channelise household savings into insurance," said Mahesh C Purohit, eminent economist and director, Foundation for Public Economics and Policy Research. Currently, a chunk of household savings in India is diverted into physical assets such as gold and land instead of financial products.
Purohit said that the recent move by the government to relax investment norms in insurance and handing out tax breaks, especially for life insurance products, is sure to usher in a new and vibrant era for insurance.
However, others were sceptical on the implementation of 49 per cent FDI in insurance. An official with a leading private insurance house said that while the FDI insurance proposal looks attractive, a lot depends on how it will be implemented.
In taking the unusually bold measure, the UPA has sought to go against the recommendations of a parliamentary standing committee headed by the Opposition BJP. The BJP has supported FDI in the insurance sector to the extent of 26 per cent for foreign players.
Now, the Bill needs to be passed by Parliament since it is an act of law and the government does not have the requisite number in the Upper House. To compound the problem, the two major allies, DMK and Samajwadi party have signalled their reservations on the issue.
This makes it difficult for the government to give final shape to the proposal. The government has said that it will try to bring on board a section of allies and Opposition parties who are averse to the move. There are also indications that the government will delay the Winter session of Parliament to buy more time to convince the parties opposing the move.
But, there is the impending fear that the forthcoming session might get buried in the din and bustle of Opposition protests -- as witnessed in the wake of the 2G and coal block allocation controversies -- without yielding much by way of results.
The reforms in the fund-starved insurance and pension sectors are important for channelising long-term public savings to the infrastructure sector, for which the government envisages investments of $1 trillion in the next five years.
The capital infusion in insurance is also needed for the much required growth of the sector and enlarging its base. India currently does not have enough capital to boost this sector. The current reform, if implemented, can bring in close to Rs 30,000 crore required for the expansion of the insurance sector in the country in the next five years.
Besides, insurance penetration in India is still in its nascence. Twelve years after it was opened up for private competition, just a tad over 4 per cent of the population invests in insurance products. Analysts feel that unless insurance penetration is raised in the country, growth in the sector will be subdued.
Economists also opine that the contributions of the insurance and pension sectors can enhance overall economic growth on a sustained basis. India's economic growth has fallen to a nine-year low of 5.5 per cent of late.
According to insurance regulator IRDA, the sector presently constitutes around 4.5 per cent of the GDP. Throwing it open to foreign participation can help the sector grow at a peg of 11-12 per cent per annum.
"For that big a growth in this sector, it is important to channelise household savings into insurance," said Mahesh C Purohit, eminent economist and director, Foundation for Public Economics and Policy Research. Currently, a chunk of household savings in India is diverted into physical assets such as gold and land instead of financial products.
Purohit said that the recent move by the government to relax investment norms in insurance and handing out tax breaks, especially for life insurance products, is sure to usher in a new and vibrant era for insurance.
However, others were sceptical on the implementation of 49 per cent FDI in insurance. An official with a leading private insurance house said that while the FDI insurance proposal looks attractive, a lot depends on how it will be implemented.
In taking the unusually bold measure, the UPA has sought to go against the recommendations of a parliamentary standing committee headed by the Opposition BJP. The BJP has supported FDI in the insurance sector to the extent of 26 per cent for foreign players.
Now, the Bill needs to be passed by Parliament since it is an act of law and the government does not have the requisite number in the Upper House. To compound the problem, the two major allies, DMK and Samajwadi party have signalled their reservations on the issue.
This makes it difficult for the government to give final shape to the proposal. The government has said that it will try to bring on board a section of allies and Opposition parties who are averse to the move. There are also indications that the government will delay the Winter session of Parliament to buy more time to convince the parties opposing the move.
But, there is the impending fear that the forthcoming session might get buried in the din and bustle of Opposition protests -- as witnessed in the wake of the 2G and coal block allocation controversies -- without yielding much by way of results.