| Insurance
Companies next to benefit in SEZs |
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| In
an attempt to further promote exports the commerce
ministry is now wooing the insurance sector with
fiscal sops and permission for 100 per cent investment
for setups in special economic zones (SEZs). The
proposal however is yet waiting clearance from the
finance ministry and the Insurance Regulatory and
Development Authority (IRDA)
Other
concessions to the insurance companies include flexibility
on foreign investments and relatively lower capitalization
required.
Currently
general insurance underwriters are required to commence
business with a minimum paid-up capital of Rs.1
billion, while the figure stands at Rs. 2 billion
in the case of reinsurance companies. The IRDA also
requires insurers to invest a large amount of their
funds in government securities, while there are
several restrictions for investing in corporate
debt and equity. |
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Our Say |
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| The
proposed concessions made to the
insurance sector come in the wake
of the RBIs issue of 10 licences
for setting up of overseas banking
units (OBU). While the SBI
opened its first OBU in early
July’03,
other banks are expected to follow
in the next 3 months.
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Companies
buying insurance covers for goods outside
India could opt for a foreign insurer, though
they are also required to purchase a policy
from an Indian company —private or public
sector — for all assets and liabilities
in India under the Foreign Exchange Management
Act.
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Simpler
norms for insurers are also likely to help in savings
on forex, as insurance companies operating in SEZs
were expected to cover assets and liabilities outside
India. |
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| Franchising
- the MNC route to the Indian retail market
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| Restrictions
on foreign investment in the Indian retail sector
have not dithered multinationals from grabbing a
piece of the organised segments $ 4.24 billion pie.
The
franchisee system has clearly been the most favoured
option for prominent global retailers and wholesalers
in dealing with the regressive investment policy.
With the three channels of franchise agreements-
cash and carry, wholesale trading and strategic
licence agreements, Indian consumers are now being
introduced to global retailers- be they designer
garments, leisure centres or fast food chains.
While
Gold's Gym has granted the franchisee the right
to open a single unit, McDonald's is operating in
the country on a master franchisee basis. Domino's
on the other hand has opted for the regional franchisee
route. |
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| The
restrictions on 100% FDI in wholesale trading,
involves building a large distribution infrastructure.
Wholesalers thus deal with smaller retailers
and not with the consumers directly. The South
African super market chain Shoprite and liquor
manufactures Scottish and Newcastle, UK, have
operated through such a distribution network
in India. |
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Our Say |
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| India
would experience a huge increase
in FDI if the retailing sector
were opened up. In spite of the
stringent norms foreign retailers
have continued to plan entry strategies
to exploit the market potential.
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| Foreign
companies using the strategic license agreements,
enter into joint venture agreements with domestic
retailers - as in the case of the apparel brand
Mango- with the Mumbai-based department store, Pyramid.
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