Major Highlights of the Insurance Laws (Amendment) Bill, 2015 Passed by Parliament

The Insurance Laws (Amendment) Bill, 2015 was passed by the Parliament. The passage of the Bill paved the way for major reform related amendments in the following acts : –

  • Insurance Act, 1938
  • The General Insurance Business (Nationalization) Act, 1972
  • The Insurance Regulatory and Development Authority (IRDA) Act, 1999.

I have prepared this post with inputs from PIB. Have a look at the major highlights of the changes that the amendment will bring.

1. . The Insurance Laws (Amendment) Act 2015 to  will replace the Insurance Laws (Amendment) Ordinance, 2014.

2. The amendment Act will remove archaic and redundant provisions in the legislations and incorporate certain provisions to provide Insurance Regulatory and Development Authority of India (IRDAI) with the flexibility to discharge its functions more effectively and efficiently.

3. Provides for enhancement of the foreign investment cap in an Indian Insurance Company from 26% to an explicitly composite limit of 49% with the safeguard of Indian ownership and control. The enactment of the bill will also raise the foreign investment cap in the pension sector since it was linked to the ceiling in the insurance sector at the time of the passage of the Pension Fund Regulatory and Development Authority bill in 2013.

4. Capital Availability: It will enable capital raising through new and innovative instruments under the regulatory supervision of IRDAI. Greater availability of capital for the capital intensive insurance sector would lead to greater distribution reach to under / un-served areas, more innovative product formulations to meet diverse insurance needs of citizens, efficient service delivery through improved distribution technology and enhanced customer service standards. . It would also boost infrastructure funding since only an insurance corpus can fund long-gestation public works projects.

Four public sector general insurance companies had to be 100 % government owned as per The General Insurance Business (Nationalisation) Act, 1972 (GIBNA, 1972). They are now allowed to raise capital. This is due to the need for expansion of the business in the rural and social sectors, meeting the solvency margin for this purpose and achieving enhanced competitiveness. But government equity will not be less than 51% at any point of time.

5. Consumer Welfare: It will enable the interests of consumers to be better served through provisions like those

  • Enabling high penalties on intermediaries / insurance companies for misconduct, mis-selling and misrepresentation by agents / insurance companies
  • Disallowing multilevel marketing of insurance products in order to curtail the practice of mis-selling.

This could act as a deterrent against the rampant mis-selling menace which has resulted in many policyholders being duped into buying unsuitable products.

6. Empowerment of IRDAI: The Act will entrust responsibility of appointing insurance agents to insurers and provides for IRDAI to regulate their eligibility, qualifications and other aspects. It enables agents to work more broadly across companies in various business categories. The safeguard being that conflict of interest would not be allowed by IRDAI through suitable regulations.

IRDAI is empowered to regulate key aspects of Insurance Company operations in areas like solvency, investments, expenses and commissions and to formulate regulations for payment of commission and control of management expenses.

It empowers the Authority to regulate the functions, code of conduct, etc., of surveyors and loss assessors. It also expands the scope of insurance intermediaries to include insurance brokers, re- insurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors and such other entities.

Further, properties in India can now be insured with a foreign insurer with prior permission of IRDAI, which was earlier to be done with the approval of the Central Government.

7. Health Insurance: The amendment Act defines ‘health insurance business’ inclusive of travel and personal accident cover and discourages non-serious players by retaining capital requirements for health insurers at the level of Rs. 100 Crore, thereby paving the way for promotion of health insurance as a separate vertical.

8. Promoting Reinsurance Business in India: The amended law enables foreign re-insurers to set up branches in India and defines ‘re-insurance’ to mean “the insurance of part of one insurer’s risk by another insurer who accepts the risk for a mutually acceptable premium”. It excludes the possibility of 100% ceding of risk to a re-insurer, which could lead to companies acting as front companies for other insurers. Entry of reinsurance companies into the Indian market will bring in knowledge and expertise together with underwriting capacities. Must be wondering what re-insurance is ? Re-insurance means that multiple insurance companies share risk by purchasing insurance policies from other insurers to limit the total loss the original insurer would experience in case of a disaster. By spreading risk, an individual insurance company can take on clients whose coverage would be too great of a burden for the single insurance company to handle alone.

9. Strengthening of Industry Councils: The Life Insurance Council and General Insurance Council have now been made self-regulating bodies by empowering them to frame bye-laws for elections, meetings and levy and collect fees etc from its members. Inclusion of representatives of self-help groups and insurance cooperative societies in insurance councils has also been enabled to broad base the representation on these Councils.

10. Robust Appellate Process: Appeals against the orders of IRDAI are to be preferred to SAT as the amended Law provides for any insurer or insurance intermediary aggrieved by any order made by IRDAI to prefer an appeal to the Securities Appellate Tribunal (SAT).

Thus, the amendments are in tune with the evolving insurance sector scenario and regulatory practices across the globe. The amendments will enable IRDAI to create an operational framework for greater innovation, competition and transparency, to meet the insurance needs of citizens in a more complete and subscriber friendly manner. The amendments are expected to enable the sector to achieve its full growth potential and contribute towards the overall growth of the economy and job creation.


Economic Survey Highlights : – Problems with APMCs and possible solutions

Current Scenario

Presently, markets in agricultural products are regulated under the Agricultural Produce Market Committee (APMC) Act enacted by respective State Government. This Act notifies agricultural commodities produced in the region such as cereal, pulses, edible oilseed and even chicken, goat etc. The first sale in these commodities can be conducted only under the aegis of APMC through the commission agents licensed by the APMC. The typical amenities available in or around the APMC are: auction halls, weigh bridges, godowns, shops for retailers, farmer’s amenity center etc. Various taxes, fees/charges and cess levied on the trades conducted in the Mandis are also notified under the Act.


• APMCs charge multiple fees, of substantial magnitude, that are non-transparent. They charge a market fee of buyers, and they charge a licensing fee from the commissioning agents and licensing fees from a whole range of functionaries. In addition, commissioning agents charge commission fees on transactions between buyers and farmers. Also the commissions charged by commission agents are exorbitant as they are often charged on entire value of product sold rather than the net value. There is a perception that the positions in market committees and market boards are occupied by the politically influential and leading to the formation of cartels in APMC. The APMC operations are hidden from scrutiny as the fee collected is not under State legislature approval.• These statutory levies/mandi tax, VAT etc. varying from state to state are the major source of market distortion. Such high level of taxes at the first level of trading has significant cascading effects on the price.

• The APMC Act treats APMC as an arm of the state and the market fee as the tax levied by the state, rather than fee charged for providing services. This provision acts as a major impediment to creating national common market.

Model APMC Act

Ministry of Agriculture developed a Model APMC Act, 2003 for the freedom of farmers to sell their produce. The farmers could sell their produce directly to the contract-sponsors or in the market set up by private individuals, consumers or producers. The Model Act also increases the competitiveness of the market of agricultural produce by allowing common registration of market intermediaries. Many of the States have partially adopted the provisions of model Act and some states such as Karnataka have adopted changes to create greater competition within State. Karnataka Model provides for a single licensing system, offers automated auction and post auction facilities. It also facilitate warehouse-based sale of produce, facilitate commodity funding, prices dissemination by leveraging technology and private sector investment in marketing infrastructure.
However, the Model APMC Act does not go far enough to create a national or even state level common market for agriculture commodities. The Act retains the mandatory requirement of the buyers having to pay APMC charges even when the produce is sold directly outside the APMC area. Though the Model Act provides for setting up of markets by private sector, this is not adequate to create competition even within the state since the owner will have to collect fees/taxes on behalf of the APMC in addition to their own charges.
The Economic Survey emphasizes on the need for a national common agricultural market.
Major problem in agricultural growth has been un-integrated and distortion ridden agricultural market.

What are the possible solutions then ?

The Economic Survey suggests 3 incremental steps as possible solutions, building on the Budget 2014 recognition for setting up a national market, farmers’ markets and need for the Central Government and the State Government to work closely to reorient their respective APMC Act.

Possible solutions

1. It may be possible to get all States to drop fruits and vegetables from APMC schedule of regulated commodities and followed by other commodities.

2. State governments should also be specifically persuaded to provide policy support for alternative or special markets in private sector.

3. In view of the difficulties in attracting domestic capital for the setting-up marketing infrastructure, liberalization in FDI in retail could create possibilities for filling in the massive investment and infrastructure deficit in supply chain inefficiencies.

4. Creation of a National Common Market 

• Use Constitutional provisions to create a national common market for agricultural commodities.

– Concurrent List – Entry 33 covers trade and commerce and production, supply and distribution of food stuff including edible oilseeds and oils, raw cotton, raw jute etc.

– Union List – Entry 42 Interstate trade and commerce also allows a role for the Union.



Economic Survey Highlights : – Manufacturing or Services ?

Excerpts from Economic Survey –
In order to bring about expansion and structural transformation, India should utilize its dominant resource of unskilled labour. But, “What should India make?Manufacturing or Services? ”
The Economic Survey distinguishes registered manufacturing ( formal sector) from the general manufacturing which covers informal sector as well.
Advantages of Registered Manufacturing ( Formal Sector )
  • Has the potential for structural transformation.
  • Exhibits high productivity compared to other sectors of the economy.
Issues with Registered manufacturing ?
  • Manufacturing productivity in India lags behind other nations.
  • All Indian states exhibit declining share of manufacturing in the State GDP.
  • Registered manufacturing couldn’t bridge regional disparities in India.
  • Registered manufacturing now in India has been identified as skill intensive which is not in line with the India’s comparative advantage in unskilled labour.
Factors for non development of manufacturing as an engine of economic growth :- 

• Distortions in Labour Market

• Distortions in Capital Market

• Distortions in Land Market

• Specialization not in line with India’s comparative advantage in unskilled labour

Certain subsectors of services – financial services and business services, exhibit higher productivity levels than registered manufacturing. However, these sectors being highly skill intensive (excluding construction) are out of line with the skill profile of the Indian labour force. They are unlikely to generate widely shared and inclusive growth. Though, service sector has the potential for domestic growth convergence across regions.


Budget 2015 Excerpts : – Major New schemes

1. Micro Units Development Refinance Agency (MUDRA) Bank

Government has planned to set up a Micro Units Development and Refinance Agency (MUDRA) Bank through a statutory enactment. This Bank would be responsible for regulating and refinancing all Micro-finance Institutions (MFI) which are in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities. The Bank would partner with state level/regional level co-ordinators to provide finance to Last Mile Financer of small/micro business enterprises.

The MUDRA Bank would primarily be responsible for –

  • Laying down policy guidelines for micro/small enterprise financing business
  • Registration of MFI entities
  • Regulation of MFI entities
  • Accreditation /rating of MFI entities
  • Laying down responsible financing practices to ward off indebtedness and ensure proper client protection principles and methods of recovery
  • Development of standardised set of covenants governing last mile lending to micro/small enterprises
  • Promoting right technology solutions for the last mile
  • Formulating and running  a Credit Guarantee scheme for providing guarantees to the loans which are being extended to micro enterprises
  • Creating  a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri Mudra Yojana.

A sum of Rs 20,000 crores would be allocated to the  MUDRA Bank from the money available from shortfalls of Priority Sector Lending for creating a Refinance Fund to provide refinance to the Last Mile Financers.

Another Rs 3,000 crore would be provided to the MUDRA Bank from the budget to create a Credit Guarantee corpus for guaranteeing loans being provided to the micro enterprises.

The above measures would not only help in increasing access of finance to the unbanked but also bring down the cost of finance from the last Mile Financers to the micro/small enterprises, most of which are in the informal sector.

2. National Investment and Infrastructure Fund (NIIF)

  • Initial corpus of Rs.20,000 crore will be ensured for the NIIF.
  • This will enable the trust to raise debt, and in turn, invest as equity, in infrastructure finance companies such as Indian Railway Finance Corporation and National Housing Bank.
  • These companies with stronger equity base, in turn, will raise more debt to invest in infrastructure.

3. Pradhan Mantri Krishi Sinchai Yojana

• Aimed at ensuring access to water to every farm (“Har Khet Ko Pani”) and improving water use efficiency (“Per Drop More Crop”).

•  Total allocation to PMKSY for 2015-16 has been budgeted at Rs 5,300 crore, which includes Rs 1,800 crore towards micro-irrigation.

•  Provide end-to-end solutions in the irrigation supply chain, including the water source, the distribution network and farm-level application.

4. Paramparagat Krishi Vikas Yojana

• In order to improve soil health, this scheme has been launched to support organic farming.

•  Objective is to promote eco-friendly concept of cultivation reducing the dependency on agro-chemicals and fertilizers and to optimally utilize the locally available natural resources for input production.

• Allocation of Rs 300 crore.

5. Pravasi Kaushal Vikas Yojana

• Pravasi Kaushal Vikas Yojana aims to enhance employability of Indian Youth abroad and move them up the wage-chain by providing training and certification which will be internationally recognized.

6. Skill Development Initiatives

• The Rs 1,500 crore allocated under the Deen Dayal Upadhyay Gramin Kaushal Yojana for skilling rural youth will help skill development penetrate deeper into the country’s landscape.

• Rs 1,350 crore allocated for National Skill Certification and Monetary Reward Scheme (STAR Scheme) will go a long way in helping those who wish to acquire a skill but need financial support.

• Rs 150 crore allocated under Kaushal Vikas Yojana will also provide essential fillip to the Skill Development initiatives in the country.

7. Self-Employment and Talent Utilization ( SETU )

• SETU will be a Techno-Financial, Incubation and Facilitation Programme to support all aspects of start up businesses, and other self-employment activities, particularly in technology-driven areas.

• An amount of Rs.1000 crore is being set up initially in NITI Aayog for SETU.

• Concerns such as a more liberal system of raising global capital, incubation facilities in our centres of excellence, funding for seed capital and growth, and ease of Doing Business etc need to be addressed to create lakh of jobs and hundreds of billion dollars in value. SETU is being set up to meet this objective.

8. Van Bandhu Kalyan Yojana

• Scheme for  holistic development of Tribal communities. Focuses on bridging infrastructural gaps and gap in human development indices between Schedule tribes and other social groups. VKY also envisages to focus on convergence of different schemes of development of Central Ministries/Departments and State Governments with outcome oriented approach.

• Initial corpus 100 cr.

• Scheme has already been launched on pilot basis in one block each of the States of Andhra Pradesh, Madhya Pradesh, Himachal Pradesh, Telangana, Orissa, Jharkhand, Chattisgarh, Rajasthan, Maharashtra and Gujarat.

9. Atal Innovation Mission (AIM)

• AIM will be an Innovation Promotion Platform under NITI Aayog involving academics, entrepreneurs and researchers. It will draw upon national and international experiences to foster a culture of innovation, R&D and scientific research in India.The platform will also promote a network of world-class innovation hubs and Grand Challenges for India.

• Initially a sum of Rs.150 crore has been earmarked for this purpose.

10. Nai Manzil

• An integrated education and livelihood scheme called ‘Nai Manzil’ will be launched this year to enable minority youth who do not have a formal school-leaving certificate to obtain one and find better employment.

• It is billed as a bridge course to bridge the academic and skill development gaps.

There are several other schemes whose guidelines have not been issued yet. In due course of time, as and when it’s up in public domain, I’ll update it.


Budget 2015 Excerpts :- Five Major Challenges to the Economy

I’ve prepared this article from the Budget speech of Finance Minister.

Five major challenges before the economy as informed in the budget by the Finance Minister are :-

1. Agricultural incomes are under stress.  To increase the incomes of farmers, it is imperative that a National agricultural market is created, which will have incidental benefit of moderating price rises.

2. Increase investment in infrastructure through public investment. With private investment in infrastructure via the PPP model still weak, public investment needs to step in, to catalyze investment.

3.  Manufacturing has declined from 18% to 17% of GDP as per new GDP data. Manufacturing exports have remained stagnant at about 10% of GDP. The Make in India programme is aimed at meeting this challenge, thus creating jobs.

4. There is need for fiscal discipline in spite of rising demands for public investment. In keeping with the true spirit of co-operative federalism, 42% share of the divisible pool of taxes will be devolved to states. This would empower states with more resources. Funds will also be transferred by way of grants and plan transfers. Thus, total transfer to the states will be about 62% of the total tax receipts of the country. In spite of the consequential reduced fiscal space for the Centre, the Government will continue supporting important national priorities such as agriculture, education, health, MGNREGA, and rural infrastructure including roads. Programmes targeted for the poor and the under-privileged will be continued.

5. Maintaining fiscal discipline is a challenge. Economic growth at 11.5%, has been lower in nominal terms by about 2%, due to lower inflation. Consequently, tax buoyancy was also significantly lower. Despite this, the challenging fiscal deficit target of 4.1% of GDP has to be met.



Everything you need to know about Strategic Oil Reserves of India

Low oil prices are sure to encourage countries to create such reserves. China is already engaged in building reserves. The opportunity should be exploited to beef up oil reserves.

What is a Strategic Oil Reserve ?

The Strategic Oil Reserve is an emergency fuel storage of oil . They are a nation’s counter against any short-term disruptions in energy supplies. These are typically state-funded and are meant to tackle emergency situations. Crude oil from these reserves can be released when there is a short-term supply disruption, a natural calamity or a global event such as a war that may lead to an abnormal increase in prices.  According to the  2001 agreement, all member countries of the International Energy Agency must have a strategic petroleum reserve equal to 90 days of prior year’s net oil imports for their respective country.


NSSO Report 70th Round – Situation Assessment Survey of Agricultural Households in India

I have listed down the highlights of NSSO Report. It is a useful data-set – status of agricultural households, their diversifying income sources, access to financial products etc. You need not remember the figures. You need to get an idea, what the situation is.

Household type – Rural India has an estimated 90.2 million agricultural households— about 57.8% of the total estimated rural households in the country. An agricultural household was defined in the survey as a household receiving value of produce of more than Rs.3,000 from agriculture with at least one member self-employed in farming. What does this mean ? Around 58% of rural households are involved in agricultural activities. 40% make a living out of non-farming economic activities.Under the Census, any area not urban is deemed to be rural. What does this indicate? Farm sector’s share to GDP might keep falling even though rural area will have less of agriculture.


100 % FDI in Medical Devices Sector – What will be the effect ?

India has achieved an eminent global position in pharma sector. However, the same has not been achieved in the medical devices industry . India’s cash strapped medical devices sector needed a new lease of life. Because, we have acche din now, Government relaxed FDI policy for the sector to bolster it.