The Rediff Budget '98 Interview/George Otto
'India can achieve 8 per cent growth'
George Otto has been in India for three years as the representative of one of the world's largest insurance company Allianz AG.
All this while he has been waiting for Parliament to pass the Insurance Regulatory Authority bill, opening up the insurance sector.
However, Otto feels three years is not a long time ''if you are committed to a country for a long time''.
He is optimistic about the forthcoming Budget and feels that Finance Minister Yashwant Sinha will give indications of opening up the insurance sector in his Budget speech.
In an exclusive interview with Senior Correspondent Syed Firdaus Ashraf, he spoke about his expectations from the Budget, especially after the recent nuclear tests.
Do you expect the government to continue with the reforms process considering that its image has taken a beating after
Yes, I think the Indian government will be more pro-reforms. They will try to attract more foreign investment considering that the many developed countries have imposed sanctions on them.
In what way have the sanctions affected India?
The sanctions have not affected India. However, the real issue is whether the United States would block the World Bank loans to the Indian government. And to what extent it would restrict private lending to New Delhi... So far, the US has not been done these. But, if the US decides to block such inflows, the impact could be severe.
Reports say some foreign banks have stopped lines of credit...
This has been done as the banks are not sure about the nature of sanctions. They are playing it safe. But this cannot continue for long. Otherwise, there will be a severe crisis.
So I feel the government will go ahead with the IRA which could provide some inflow into the infrastructure sector.
There are certain elements in the BJP who talk about swadeshi. Will they allow the government to open up the insurance sector?
It is accepted by the Bharatiya Janata Party and the Swadeshi Jagran Manch that competition is required for the insurance industry. The key issue is whether foreign participation should be allowed. But I feel the process of deregulation will go on.
You have been waiting for three years. Do you believe that the insurance sector will be opened one day?
One has to be patient if one has a long-term commitment to any country. Of course, there is a limit to the patience.
If you have a long-term commitment, a delay of a couple of years must not result in your walking out of the country, as long as the indications remain positive.
If we get a feeling that the insurance sector will not be opened for 10 years, no one will wait. We had to wait for six years in China before we got the licence to operate.
So you think that the sector will be opened for foreigners
in three years?
The key players in the BJP have indicated that they are pro-reform.
The only question that remains is whether foreign participation will be allowed. It is the real contentious issue. It is the only issue which could further delay deregulation.
Life Insurance Corporation of India has been in the market for so long. It started its operation with a meagre Rs 50 million. It has grown into a huge financial institution today. So do you think Indian consumers really need foreign insurance companies?
If there is a monopoly, there is very little incentive to provide
the best product, the latest products and the best quality of service.
Foreign companies will give Indian consumers a choice.
Do you think the finance minister will announce the decision in the Budget?
He will give an indication. The legislation may be introduced later.
What is the most important challenge before Finance Minister Yashwant Sinha with regard to the Budget?
Infrastructure investment. It is one of the sectors which is delaying the development process.
It is the right time to take corrective steps considering that there
is a problem in the southeast Asian countries. Today, investors are seriously looking towards India because you do not have a currency problem like most of the southeast Asian countries.
Can you define your ideal Budget?
It should be a moderate Budget, taking care of infrastructure. The last Budget took good care of taxation. So, in this Budget, the development side should be given more importance.
Did India make a mistake by going in for the tests, considering that investors are now looking towards the country?
Yes. It was very unfortunate. No doubt, India has a security problem. But the timing of the tests was not good.
India was looking more and more attractive to the FIIs. But, after the tests, their approach is a wait-and-watch policy.
Do you think it is possible to achieve eight per cent growth rate?
India has no currency problem compared to other Asian countries.
I feel it can achieve it if the process of liberalisation
Isn't the West being hypocritical as far as the sanctions are concerned, especially because China has been spared?
Of course. However, I feel that certain discrimination is part of life and we have to live with it. China is treated more leniently than India. But one has to understand the monetary economics. If the US imposes sanctions against China, it will have a severe effect on its economy. But their sanctions against India will have little impact on the US as the volume of investment from America to India is relatively low.
Don't you think the fiscal deficit, which is touching 6.1 per cent of the GDP, is causing concern?
Definitely. It is approaching a very high side. The last
Budget tried its best to bring more people into the taxation
net, to reduce the fiscal deficit.
The government should try to bring it down to 3 to 5 per cent of the GDP.
Do you think schemes like the Voluntary Disclosure of Income Scheme will be helpful?
I don't think such schemes will work as the tax-payer will think that he would rather wait for another occasion, rather than paying this time.
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