Nationalisation of Life Insurance in India

Author(s): Kamal Nayan Kabra

Source: Economic and Political Weekly , Nov. 22, 1986, Vol. 21, No. 47 (Nov. 22, 1986),
pp. 2045-2053
Published by: Economic and Political Weekly

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 SPECIAL ARTICLES

Nationalisation of Life Insurance in India

Kamal Nayan Kabra

Life insurance is a specific illustration of the process c f nationalisation where non-ideological, sector or activities-
specific compulsions were decisive. It was based on an unannounced quiet inquiry spread over a number of years
which showed that neither a code of conduct nor legislation could make priva e insurers operate to protect the
interest of the policyholders. However the Life Insurance Act gave clear evidence of the absence of any doctrinaire
bias against the private sector. In the context of the new industrial policy which was then on the anvil, it was
essential that nationalisation of I ;e insurance did not give contradictory signals and tilt the power and ideological
balance in the Indian economy.

NATIONALISATION of the life insurers in
the year 1956 was among the major steps for
bringing the insurance sector under direct
public ownership and control. It also con-
stituted an important landmark in the
extension of direct public control and owner- the ownership and management pattern of
ship over the organised financial institutions the insurance business. It is shown how the
in the country. This decision coincided with
the Second Five Year Plan as well as the an-
nouncement of the Industrial Policy Resolu-
tion, 1956 which replaced the 1948 Resolu-
tion. The law for the take-over of the
insurance companies was also the one which
explicitly used the word 'nationalisation' for various factors which made the nationalisa-
the first time.
The decision to nationalise insurance is
a specific illustration of the process of
nationalisation witnessed in India during the
post-independence period in which non-
ideological sector or activities specific com-
pulsions were decisive. It was a step which
was taken after the potential of indirect
steering and control by means of legislative
and administrative efforts was nearly
exhausted. In any case, like most other
nationalisations, the nationalisation of life
insurance was also meant to serve some
macro-national objectives and was made use
of for giving a certain degree of popular level nationalisation of life insurance, its manage-
credence to the freshly declared socialistic
orientation of the regime. This is despite the tinued to retain their separate identities 1956)
fact that adequate care was taken to assure
private enterprise that it is only a specific
instance of extention of public ownership
without initiating a generai process of this
kind.
The paper begins with section I which
analyses the legal process by means of which
the insurance companies were taken over
alongwith a review of the issue of payment
of compensation. The section also includes
indicators on the size of the nationalisation
operation and takes stock of the organisa-
tional forms, capital structure and size of
insurance business on the eve of nationalisa-
tion, including the relative size of Indian and
foreign insurers.
Section II presents a brief history of life
insurance in India, indicating the important
features of the growth of the insurance
business and an account of the problems like
that of its slow growth and prevalance of
malpractices inimical to policyholders. On
the basis of this analysis, in section III, we
move on to analyse the efforts made by the time the bill replacing [he ordinance was
government for the regulation and control moved in the Lok Sabha on February 22,
of insurance business. This analysis brings 1956, 126 insurance companies who account
out the nature of controls, their failures and for 96 per cent of the total insurance
limitations and tries to link these issues with business were already managed by custo-
dians and the management at the top was
directly in the hands of the government.8
insurers responded to various controls The ordinance was aimed at "eventual
largely with a view to defeat them. On the smooth and efficient integration" of the
basis of this analysis and links of life large number of insurers without disturbing
insurance business with the broad macro and normal business during the interim period
sectoral aspects of the Indian economy, an of some five to six months.9 During this
attempt is made to highlight and explicate period, a number of preparatory steps were
taken towards the formation of a single state-
tion of insurance an unavoidable necessity. owned life insurance corporation.'0
In the last section, we put together the main The insurers were given compensation for
conclusions of the study. loss of management rights for the period
pending nationalisation on the basis of 1/12
I
of the annual average of the share of surplus
The life insurance business in India was allocated to the shareholders in respect of
brought under state control by means of twotwo actuarial investigations preceding
legislative enactments. As a first step, the management take-over and in cases where
Life Insurance (Emergency Provisions) no surplus was allocated at the rate of one
Ordinance was promulgated on January 19, rupee per month for every Rs 200 of the
1956. It vested in the central government, premium income of the insurer during
with immediate effect, the management of 1954."1
The act for the nationalisation of life
the 'controlled business' of practically all the
insurers in India.' Thus, prior to insurance business in India was introduced
in the Lok Sabha in March 1956. The Life
ment was taken over.2 All the insurers con- Corporation Act, 1956 (31 of
Insurance
andprovided for "the nationalisation of
existence but were placed under the control life insurance business in India by transfer-
of custodians, appointed by the government, ring all such business to a corporation
and drawn from the ranks of senior officers established for the purpose".'2 It can be
of insurance companies.3 seen that here is a law which explicitly uses
The ordinance was replaced by the Life the word nationalisation for describing its
Insurance (Emergency Provisions) Act, 1956 main purpose. The act provided that there
in March, 1956.4 The normal procedure of shall be transferred to and vested in the cor-
enactment of a law through introduction of poration all the assets and liabilities relating
a bill was not adopted and an ordinance was to the controlled business, i e, life insurance
issued because it was felt by the government business, of all insurers, as defined in the
that it was in this way that "a serious frit- Insurance Act, 1938, and included the
tering away of the assets", by "less scrupu- government and provident societies.'3
lous insurance managements" 5 could be The Life Insurance Corporation, a body
prevented.
corporate, with an original capital of Rs 5
The ordinance provided for the transfer of crore provided by the central government,
the control of 154 Indian insurers, 16 non- was entrusted with the task to carry on life
Indian insurers and 75 provident societies to insurance business whether in and outside
the custodians appointed by the govern- India in such a manner as to secure that this
ment,6 pending which the "existing business "is developed to the best advantage
managements of the insurance companies of the community".'4 The corporation has
are able to carry on exactly as before" but "the exclusive privilege of carrying on life
"as agents of government" and with a insurance business in India".'5 Thus it was
restriction of some of their powers.7 At thea nationalisation which created a legal public

Economic and Political Weekly 2045

Vol XXI, No 47, November 22, 1986

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 November 22, 1986 ECONOMIC AND POLITICAL WEEKLY

sector monopoly. The new corporation came (a) Mutual insurance companies and co- insurance companies with over Rs 5 lakh as
into existence on September 1, 1956.16 operative societies (42). paid-up capital, accounting for about 12 per
The insurers were compensated for the ac- (b) Companies (68). cent of the companies, controlled over 41 per
quisition of their controlled business. 17 2 Non-Indian insurers carrying on life cent of the total paid-up capital. The table 2,
According to the first schedule of the act, business only based on data from "IIYB", 1955, cover-
three methods for determining the compen- 3 Indian insurers carrying on life business ing 100 insurers out of 110 falling in those
sation amount were specified. 18 If the with other classes of business (all com- categories (60 with paid-up capital and 40
amounts so determined by the corporation panies as on 31.8.56) (38). for mutual benefit societies and co-operative
and approved by the central government are 4 Non-Indian insurers carrying on life societies) shows the distribution of insurers
not acceptable to the insurers, the matter was business with other classes of business according
(as to size of paid-up capital.
to be r'eferred to the tribunals constituted for on 31.8.1956) (12). The life insurance business, which was ac-
the purpose.'9 The tribunal was set up in 5 Provident societies (as on 31.12.55) (73). quired and vested in the LIC, had a high
May 1957 with P B Deo as its chairman. (The numbers do not agree with the total asdegree of concentration. This can be seen
Seventeen cases were referred to it and upto some campanies do not report in a par- from table 3.
1958 it decided 13 cases resulting in an ticular year.) It can be seen that about 86 per cent of
increase of Rs 40 lakh in the comoensation Of the non-Indian insurers carrying on the insurers transacted a little over 14 per
amount.20 According to Part A method both life and composite business, 10 were cent of life insurance business in India. On
called "capitalisation of earnings method"21 incorporated in UK, two each in Pakistan the other hand, a little less than 14 per cent
provided for payment of twenty times the and Canada and one in Kenya. Some 68 of the reporting insurers transacted nearly
annual average of the share of surplus insurance companies which were in liquida- 86 per cent of the business. Insurance
allocated to shareholders calculated in a tion, six non-Indian- insurers who ceased to business had a high degree of regional con-
manner specified in the schedule for insurersenter into new contracts before July 1, 1939, centration, as 103 out of 145 insurers leav-
with share capital and who allocated a bonus two administrator-managed composite ing out the provident societies, had their
to policyholders. Following Part B, compen- insurance companies (Bharat Insurance head offices in Bombay, Calcutta, Delhi and
sation was computed for insurers having a Company Ltd, and Jupitar General Insurance Madras.31
share capital who did not allocate any bonus Company Ltd) and approved superannua-
to policyholders. For them, the asset valua- II
tion funds, which were registered as insurers
tion method was followed which required a under the Insurance Act, 1938 were left out There are inherent in the Indian situation
compensation sum equal to the value of the of the purview of the LIC. Since these good many factors limiting the prospects for
assets minus that of the liabilities of the insurers were not in business their exclusion the growth of insurance business, while there
insurers relating to their controlled business did not compromise the creation of life is an undoubtedly great need for this form
on the basis of the principles and procedure insurance business as a total legal public of social security.32 Life insurance business
specified.22 Those companies whose monopoly. By Insurance Amendment Act, is one of the newer economic activities which
capitalised earnings came to less than the 1957, the central government was empowered began in India after the advent of the British
paid-up capital, "were compensated at ten to exempt from the provisions of the act, on the Indian scene and its introduction in
times the 'adjusted annual average earnings' subject to specified conditions, any insurance the second half of the nineteeth century may
plus the paid-up capital minus the capitalised business carried out by the central or a state largely be attributed to the initiative of cer-
losses and expenses not yet written off'.23 government or a government company.28 tain English companies.33 The foreigners'
For insurers other than those covered by Thus life insurance remained a public initiated business of life insurance was
Part A and Part B, those without share monopoly though public agencies other initially confined to insuring non-Indian
capital will be compensated at the rate of than the LIC could be entrusted with this lives only and it was selectively that this
rupee one per thousand of the sum assured business. business was extended to cover Indian
under each with-profit policy and those with Some important financial and operational lives.34 In fact, the story of the development
share capital were entitled, in addition to the information about the nationalised insurers of life insurance business in India is closely
above, a sum equivalent to the paid-up is as follows: connected with the manner and extent to
capital of the insurer. The act also nullified which the relative roles of Indian and non-
the insurers and their chief agents and com- Indian insurers changed right upto 1955
pensated them.24 1 Paid-up capital29 Rs 1.4858 crore when this business was nationalised. This
In terms of these provisions, and with 2 Net-worth29 Rs 24.2685 crore change reflected the growing strength of the
some references to the tribunal and the 3 Assets30 Rs 411 crore swadeshi movement particularly in the early
courts, the LIC distributed the compensa- 4 Total business Rs 1220 crore years of the present century.35 The non-
tion to the insurers over a number of years. (or sum assured) coverage of Indian lives led to a demand for
The number of insurers entitled to compen- 5 Total number of a big governmental insurance company for
sation under Part A, B and C was 77, 99 and salaried employees 2700 insuring the Indian lives, which the colonial
69 respectively.25 Upto March 31, 1966, the 6 Total book value of rulers did not, of course, concede.36 There
total amount of compensation disbursed investments Rs 341.4 crore were some attempts to set up insurance com-
came to about Rs 5.215 crore, i e, a sum in 7 Total book values
panies like Madras Equitable (1829), Madras
excess of the capital with which the LIC was in India Rs 2260 crore Widows (1824), Christian Mutual (1847), etc.
started.26
Effectively till 1870s, this business was
Of the total of 245 insurers whose con- largely in the hands of European companies.
trolled business was acquired by the govern- The total size of the life business nationa- Indian Life (1871) and Bombay Mutual
ment, 16 were non-Indian insurers, 75 were lised and its distribution among various (1871) may be regarded as the first lndian
provident societies and the rest (154) were categories of insurers as at the end of 1955 insurers to make their debut.37 But during
Indian insurers, including composite com- given in "IIYB", was as in Table 1. the nineteeth century, the growth of life
panies.27 The organisational forms of theseIt is clear that, while the provident insurance was rather modest and the failure
insurers, as revealed from the "Indian societies' share was less than half a per cent, of two British insurers,. the Albert and the
Insurance Year Book" (IIYB) for 1955 and the non-Indian insurers accounted for 12.28 European, eroded people's confidence.38
1956, was as follows:
per cent of the life business. Even among theIn fact, mariy insurers were resorting tc
1 Indian insurers carrying on life business Indian insurers, who accounted for about questionable mpthods for securing larger
only: 110 (as on 31.12.1955) of which seven-eighths of the life business, the business.39 This was an additional factor

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ECONOMIC AND POLITICAL WEEKLY November 22, 1986

which helped the growth of Indian insurers. The growth of life business, which could, in force by almost five times over the period
For regulating the growth of insurance com- in a concrete sense, be said to begin during 1930-55. Compared to Rs 22 crore of life
panies in 1866 an act for the registration of the first decade of the present century when business in force in 1914 is stood at Rs 1,220
these companies was enacted, though the most of the major companies surviving upto crore in 1955. Not only the number of
qrovisions of the Indian Companies 1956
Act were founded, can be represented in insurers generally increased, but a large
1882 were also used for the same purpose.40 terms of the rise in the number of com- number of smaller, non-viable insurers were
An authoritative account of the progress panies, total business in force in terms of either liquidated or amalgamated with
of insurance business can be obtained from number of policies and value of policies as stronger ones.42 The insurance business had
the "Indian Assurance Year Book", the well as total life fund. This is summed up nearly an uninterrupted period of growth in
publication of which was started by the in table 4. the present century except during the first
government in 1914 (after the fifteenth issue, It can be seen that the growth record of world war and during 1947-48 in the wake
its name was changed to "The Indian life insurance in absolute terms is fairly im- of the partition. The inter-war years, the
Insurance Year Book") and the first issue pressive. The number of operative policies Second World War and immediate post-war
gave the history of early development.4' increased nearly seven times and the business period saw rapid growth of life insurance in
India.43 In the early years of the centtrry,
TABLE 1: TOTAL LIFE BUSINESS TAKEN OVER AND ITS DISTRIBUTION (As AT THE END OF 1955)
there was a preponderance of proprietary
companies over mutual companies."
1 Net total business in India of Indian insurers Rs 9842,331,000 The process of growth of life insurance
(Number reported: 123) (151) (80.67 per cent) was marked by certain features which tended
2 Net total business outside India of Indian insurers Rs 920,404,000 to influence its spread, its investments and
(Number reported: 54) (66) (7.54 per cent) its capacity to mobilise savings. For a long
3 Net total business in India of non-Indian insurers Rs 1385,330,000 time, the competition offered by foreign
(Number reported: 13) (17) (11.35 per cent) insurers based on their greater strength, large
4 Total life business in India of provident societies Rs 52,870,400 business and unequal legal position affected
(Number reported: 58) (73) (0.43 per cent) the growth prospects of Indian insurers. The
5 Total business taken-over Rs 12200,935,400 average insured sum per policy was much
(1 + 2 + 3 + 4) (100 per cent)
higher for the foreign insurance companies
than for their Indian counterparts.45
Total life business in India (1+3+4) Rs 11280,531,400
However, as seen, aided by the hostility
of which:
generated by the discriminatory approach of
i) Share of non-Indian insurers 12.28 per cent
(Number of non-Indian insurers: 17
foreign companies and 'swadeshism', the
of which data reported: 13) Indian companies surged ahead to increas-
ii) Share of Indian insurers 87.25 per cent ing dominance.46 Then, a large number of
(Number 123) 99.53 per cent insurers of various sizes came up at different
points of time. By offering competitive
premium rates and excessive rebating, these
TABLE 2: DISTRIBUTION OF INSURERS ACCORDING TO SIZE OF PAID-UP CAPITAL companies tended to undermine the viability
of each other.47 Absence of reliable life
Size-group (Rs) Per Cent of Indian Insurance Per Cent of Total Paid-up tables also made systematic pursuit of the
Companies (Per Unit of Capital of the Reporting insurance business difficult. In order to at-
Those Whose Accounts Were Insurers tract business, the insurers paid rather heavy
Reported) sums to their agents which increased their
cost of operations.48 A number of non-
Less than 1 lakh 25.00 5.38
standard business practices also came to
(70 per cent of the companies
prevail. The most popular policies were en-
own about 33 per cent of
dowment policies rather than whole life
the total paid-up capital)
policies, children's endowment policies or
I lakh - 21 lakh 45.00 27.92
limited payment whole life policies.49 The
2 lakh - 5 lakh 18.33 24.92
business of Indian insurers continued to
5 lakh - 10 lakh 8.33 23.88
increase apace by 1948, Indian insurers con-
(About 12 per cent of the
trolled, as seen in table 4, the growth of life
companies own about 41 per
insurance in India over 90 per cent of the
cent of total paid-up capital)
policies in force.
Above 10 lakh 3.33 17.90
100.00 100.00 Just as in the case of banking the insurance
companies, especially the larger ones which
TABLE 3: SIZE. DISTRIBUTION ACCORDING TO NET TOTAL BUSINESS IN FORCE AT THE END OF 1955 accounted for the bulk of the insurance
business, were controlled by the large
Size Group Net Business Per Cent of Insurers Size- Per Cent of Total Net industrial and managing agency houses.50
(Total) (Sum Insured and Group Those Whose Accounts Business in the Size-Group Among such insurance companies mention
Business) Are Available may be made of the National Insurance,
Jupiter, New Asiatic, General Assurance,
Upto Rs 1O.crore 86.18 14.57 Hercules, Oriental, Bharat Insurance, etc.
Over Rs 10 crore 13.82 85.43 Among other things, this was encouraging
Total number of insurers listed 151 the growth of concentration as the insurers
of which insurers whose with a small base of share capital were con-
business figures for the year trolling a disproportionately large volume
available 123 of national savings. In keeping with the
Total business (net) in force Rs 9,84,23,31,000 regional concentration, insurance business
was also heavily concentrated in a few
Source: IIYB, 1985. regions and neglected the rural areas.5'

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 November 22, 1986 ECONOMIC AND
The insurance coverage in India was very were legislated, the new companies could
limited with only five million policyholders derive such funds from out of premiurn
in 1955 and with per capita insurance of incomes and weaken the basis for firm
Rs 25 in force.52 Similarly, the amount growth of the companies.58 In sum, the
invested by insurance companies was of the most important feature of this legislation
order of Rs 325.75 crore only at the end of was to provide for the collection, consolida-
1955. Of this, 16.4 per cent only (i e, Rs 53.17 tion and publication of information on life
crore) went to the corporate sector. A much business in India. It could hardly secure any
larger went to central, state and local govern- other objective, as no other objective was
ment security, amounting to almost 55 per sought to be achieved through it.
cent of the total.53 The contribution of life The withdrawal of foreign companies and
insurance of agriculture and rural develop- departure from the practice of charging
ment was a chapter which was yet to begin. higher premia on Indian lives encouraged
It could not even reach industrial workers the growth of Indian insurers. This outcome
in the organised sector as industrial assurance could in a certain sense be related to the 1912 on insurance until 1938, when after a good
was not started.54 act. The 1912 act excluded fire, marine and
This limited development of insurance other insurance from the purview of the act,
was marked by very many malpractices, in- presumably" because these branches were
efficiencies and frequent liquidations of dominated by foreign companies, which did
insurance companies, shaking public con- not attract regulatory action by the foreign
fidence and depriving policyholders of their government. In sum, the 1912 act "did not
savings and security. Such a situation have the desired effect of putting insurance
prevailed despite many attempts to regulate business on a sound footing".59
and control this business by legislation. The other act passed in 1912 was the
Provident Insurance Societies Act for
III regulating the business of such societies
In 1912 two separate laws were enacted to catering to the needs of the [ eople of
provide for controlling life insurance com- relatively modest means. These policies did
panies and provident societies. The Indian not exceed Rs 500 and yearly premium
Life Insurance Companies Act and Provident was Rs 25 or less. In 1946, the maximum
Insurance Societies Act were modelled on insurance amount was raised to Rs 900 and
similar English law provided for the submis- in 1950, it was further raised to Rs 1,000.60
sion of returns by the insurers.55 Many These societies were administered by the
foreign companies which were not prepared states and there was neither any requirement
to furnish such information closed down.56 of making deposit with the administering
The law required the Indian insurers to make agencies nor any actuarial valuation was to
deposits with the government, but the be made. It was only the 1938 act which im-
foreign companies were exempted from this posed the necessity of making deposits with
provision. The deposits from the Indian the RBI as well as for quinquennial actuarial
companies were not substantial enough to valuation and submission of returns to the
prevent mushrooming of insurance com- superintendent of insurance.61
panies.57 Neither a separate agency to ad- In order to strengthen the insurance law,
minister the act was created, nor any restric- a comprehensive draft bill applicable to all
tions on their investments were imposed. No insurers was circulated in the year 1925 for
measures were incorporated for investigating eliciting public opinion. However, meanwhile
the affairs of unsound companies. Since no an expert committee on insurance legislation
requirements concerning working capital was appointed in the UK and it was thought
TABLE 4: GROWTH OF LIFE BUSINESS IN INDIA: 1914-1955
1914 1930 1940 1945 1948 1955
1 No of insurers 44 68 195 215 209 245
of which Indian 44 68 179 200 189 229
(91.79) (93.02) (90.43)
Non-Indian - - 16 15 20 16
2 Total number of policies in force - 748997 16,28,381 2714000 3016000 4782000
of which by Indian 513925 1371963 2376000 2791000
(68.61) (84.25) (87.55) (90.15)
By Non-Indian 220703 181247 261000 234000
By Indian outside India 14369 75171 77000 202000
3 Total business in force 22.44 258.42 304.03 573.07 712.76 1220*
of which by Indians (Rs crore) 22.44 84.89 225.51 459.43 566.38
(32.85) (74.17) (80.17) (79.46)
By non-Indians - 69.76 60.12 91.85 101.08
By Indians outside India - 3.77 18.40 21.79 45.30
4 Total life funds (Rs crore) 6.36 20.53 62.41 107.4 150.39 220.9**
Note: Figures in brackes show percentage of the total.
Source: Bajpai, 0 P "Elements of Life Insurance", op cit, p 172.
* "Saga of Security: Story of Indian Life Insurance", Bombay, LIC, 1970.
expenses on commission, maintenance of
** See Note no 6.
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POLITICAL WEEKLY
that Indian legislation might await this
report.62 It shows how regulatory enact-
ments conceived in an alien environment
were sought to be grafted on to the Indian
conditions. Pending a comprehensive law, as
an interim measure an act was enacted in
1928 to provide for collection of statistics,
including those from the alien companies.
It also provided for the disposal of surplus
assets in the event of liquidation of an,
insurance company in the same proportions
amongst policyholders and shareholders as
profits were distributed.63 Many factors
blocked any fresh, comprehensive legislation
deal of controversy with a select committee
report to which every member appended a
note of dissent, the Insurance Act of 1938
was passed.64 The act which became effec-
tive from July 1, 1939,65 contained many
"mistakes, contradictions and unmeaning
provisions", necessitating two amendments
in quick succession in 1939 and 1940.66
The new law had many significant features.
Its coverage extended to provident insurance
societies. Its main features were as follows:67
1 Provision for the appointment of a
superintendenit of insurance with wide
powers was made. The first incumbent was
appointed in 1938.
2 To prevent the formation of mushroom
insurance companies, provision was made
in the act to increase the deposits which
the companies had to keep.
3 General insurance companies also had to
keep deposits.
4 The act provided a system for licensing
insurance agents and also placed a limi-
tation on the amouint of commission
payable to agents. It also prohibited the
payment of rebates.
5 All insurers operating in India had to ob-
tain a certificate of registration from the
superintendent of insurance and had to
comply with the requirements of the act.
6 All insurance companies had to file duly
audited balance sheets, profit and loss ac-
counts and revenue accounts with the
superintendent of insurance. In the case
of foreign companies, in addition to the
returns that they were submitting in their
country of origin, they had to provide
detailed statements in keeping with the
Jndian act regarding their Indian business.
7 The superintendent of insurance was also
given a considerable voice in the matter
of acceptance of actuarial valuations of
assets and liabilities.
Under this act, the initial.deposit for life
insurance business was raised from Rs 25,000
in government securities to Rs 50,000 in cash
or approved securities, which was sub-
sequently to be raised by instalments to Rs 2
lakh within a specified time limit.68
Administration of the insurance controls
and regulations "soon revealed its short-
comings in the matter of licensing of agents,
accounts, investment of funds of insurance
 ECONOMIC AND POLITICAL WEEKLY November 22, 1986

companies and so on"69 One response to overall view of the entire industry in its ment, the finance minister said, "Loans had
such defects was the tightening legal pro- various ramifications'"76 been given on every type of security-good,
visions themselves, as reflected in as many In conducting this study, the question bad and indifferent. Sometimes there was no
as 11 amendments in the 1938 insurance act posed related directly to the relative roles of security at all-loans on shares, on agri-
between 1939 and 1950.70 We have seen controls vis-a-vis the ownership pattern cultural lands, on barges-which indeed was
above that during the period following the of insurance companies. As the finance a floating security-standing sugarcane
1938 act and periodic amendments to it, the minister, elaborating the question officially crops and on libraries. With the tightening
growth of the insurance business, including studied, put it, "what was the nature of these of the provision regarding loans in 1950, we
accentuation of competition among Indian shortcomings (of insurance companies) and thought that these tendencies would disap-
insurers, continued except for the post- how best could they be overcome by further pear. B1ut they did not. Only they took to
partition set-back. However, the structural, other forms."83 High expenses ratio to
tightening of control? Or, alternatively, must
functional and macro-social weaknesses of they be regarded as inherent in the fype of premium incomes and faulty investment
the insurance, as brought out earlier, also management found in life insurance in jeopardised the viability of many insurers.
persisted. To take an instance, limits on the India?"77 Thus, there appears to be an Control over investment policy of private
commission payable to primary agents left explicit basis for the decision to nationalise insurers was all the more difficult, first,
many loopholes through which the intention the life insurance business in the working of because public policy was not directed to this
may be frustrated. "Indeed, several com- controls over this business and the inter- end (as reflected in the absence of returns
panies are already circumventing the restric-action between private insurers and their on investment portfolio upto 1950) and,
tion by appointing persons as organisers, public regulation. second, the interest of the controllers of
inspectors, and chief agents. These are The arguments or case for a decision in insurance companies to utilise the funds for
not primary agents and hence the remunera- favour of nationalisation appears to have financing their own companies and projects,
tion paid to them is not subject to legal been based on a combination of three sets irrespective of the interests of policyholders.
restraints! 71 of factors: inefficient and undesirable func- As the then finance minister said in the
Among the ameding acts, brought in for tioning of private insurers; inability of course of his broadcast about the manage-
dealing with the difficulties experienced or indirect regulation and control on the basis ment take-over of insurance companies, "the
shortcomings observed, the 1950 and 1955 of a comprehensive insurance law, par- tendency not infrequently hlias been to utilise
acts were fairly comnprehensive. The 1950 act ticularly in view of the ingenuity at con- the funds to meet the capital requirements
placed limits on management expenses travention and manipulation displayed by of enterprises in which the managements are
which could be incurred by both general and the private insurers; and last but not the interested rather than those which are clearly
life insurers, it also provided rules regarding least, the needs of financial resources and in the interests of policyholders."84 Thus
capital structure, voting rights, maintenance redirection of private investment arising like in the case of commercial banks, the
of registers of beneficial owners of shares, from the Second Five Year Plan. The phenomenon of bilateral monopoly was
furnishing of records to general body availability of an additional instrument in exerting decisive, pro-centralisation influence
meetings, ending of principal agents' office the form of state-owned and operated life on the investment policy of the insurers,
after seven years, creation of the Insurance insurance for the control of the private making it non-amenable to public control
Association of India and establishment of sector too played a part in the decision to on the basis of s6cial priorities. In order to
a tariff committee. It changed the designa- nationalise.78 The decision was made get over the difficulties placed on making
tion of superintendent of insurance to con- against the background of rather dismal pro- loans to related companies by insurers,
troller of insurance.72 The process of gress of life insurance in terms of coverage debentures were floated and were subscribed
tightening up control over life insurance of less than 0.5 per cent of population, with to by the insurance companies.85 In fact,
business through legislation was continued a grotesquely low figure of per capita in,sured even gross malpractices, as instanced by the
right upto 1955 when an ordinance was pro- sum and highly selective coverage of life case of Bharat Insurance and some other
mulgated for streamlining the procedure for insurance. cases pointed in the course of the parliamen-
legal action against insurers. The ordinance We elaborate this interpretation largely on tary debates over the insurance take-over bill,
was replaced by The Insurance (Second the basis of the then finance minister's could not be prevented. Concerning such
Amendment) Act 1955, which came into speech on the management take-over bill in malpractices, Cowasji Jehanjir Committee
force from November 1, 1955.73 parliament and broadcast over the All-India pointed out the prevalance of the practices
While such legislative enactments and Radio, with additional points culled out of illegal gains made through purchases
their administration was going on, around from the parliamentary debates.79 and sale of securities and falsification of
the beginning of 1950s the government had The failure of controls and regulations statements.86
initiated, at their own level and quietly, was reflected in many different dimensions. The preceding account shows' that the
studies to examine the working of life Even efforts at voluntary self-management evolution of public policy towards life
insurance business "with a view to deter- by adhering to a code of conduct framed by insurance moved from the British model of
mining the measures necessary to place it on the insurers themselves did not succeed.80 "freedom and publicity" ensuring high stan-
a sound footing"74 As the then finance For one thing, the statutory limit on dards to "detailed state control" through a
minister told the Lok Sabha, "this study was expenses of insurance companies could not draconian piece of legislation, but with little
a prolonged and comprehensive one. We be enforced because of the scope for mani- perceptible results. For instance, "with a view
took up the question first for active con- pulation like, e g, by appointing fictitious to preventing a life insurance company being
sideration sometime in 1951. We have been agents whose "main purpose seems to be to controlled by an individual, the 1950 amend-
at it throughout the period. Even the first function as the channel for passing illegal ment Act limited the shareholding of any
examination pointed to nationalisation as rebates"81 The expenses ratio increased one person to 5 per cent of the capital of
the obvious step. But we did not want to takefrom 28.9 per cent in 1950 to 29.3 per cent the insurance company. Despite this, the
a hurried decision. During this long period,in 1954 and large insurers show no better same individuals or groups continue to con-
we considered every aspect of the case and economy than the smaller ones.82 trol the insurance companies as before. The
every comment made and incidentally went Malpractices with respect to the invest- act was circumvented by holding shares in
on collecting our own experience' of com- ment of insurance funds were aplenty. the names of famnily members, friends and
panies which we were administering"75 The Prior to 1951, the government did not even employees. We indeed have very many
study was helped by the experience obtained possess a picture of the investments made experts in benami in this country".87 Many
in "the administration of the act (which) has by insurers. Maintaining that the revelationother malpractices could not be curbed, like,
afforded us an opportunity of taking an of investments position appalled the govern-for instance the practice of defeating the

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 November 22, 1986 ECONOMIC AND POLITICAL WEEKLY

intention of law through the appointment policyholders were adversely affected.94 investment by diverting insurance funds to
of dummies who passed on a substantial These socially adverse effects flowing public sector to a greater extent than was
part of their salaries to those who control from the functioning of insurance com- prevalent during pre-nationalisation era.
their appointment and emoluments. panies were benifiting a small group of During the course of the parliamentary
insurers who derived control over an enor-
Thus, the experience with indirect steering debates as well as a part of the broadcast
of life insurance business regarded as "an mously disproportionate part of social on life insurance nationalisation, two points
essential social service" in which "not a resources on the basis of rather small capital were made clear that (i) "it is not govern-
single policyholder should ever find his life mobilisation, on their own part, a parlia- ment's intention to divert the available funds
savings in danger", showed that lQgislation mentarian pointed out, "Insurance magniates to the public sector to a greater degree than
and control "can no longer be regarded as with a small share capital, control huge under present arrangements. Indeed, it will
giving us a reasonable change of achieving funds. For example, the paid-up capital of be my endeavour to see that at least as, much
our objective" and hence "it would have a company like the Oriental Life Insurance money as it today made available for invest-
been difficult to justify persisting with Company
it any is only Rg 6 lakh yet they have a ment in the priVate sector continues to be
longer". 88 life fund of more than Rs 100 crore"95 With made available"98 (ii) There was no doc-
What were the main elements of the in- the control of large business houses over trinaire or ideological dislike against private
efficient and socially unacceptable working many of the larger companies and their enterprise. Exclusion of general insurance
of life insurance which could not be dealt interlocking with industrial and banking was specifically cited as an evidence of this
with on the basis of indirect controls and companies, the control and ownership struc- policy stance.99 This was all the more
necessitated state take-over of life business? ture of insurance companies was geared to significant because general insurance, which
Basing ourselves on parliamentary debates make relentless contribution to the inherent had greater predominance of foreign com-
and the controversy on the question of forces of concentration and centralisation in panies, was 'also suffering from greater
nationalisation of life insurance, we find thatthe Indian economy. malpractices and misuse of power, position
a fairly formidable case existed against the No doubt, there were a handful of well- and privilege. 100 Its exclusion was designed
private insurance companies.89 The major managed companies. The finance minister to reassure the private sector that no general
shortcomings noticed in their functioning recognised while introducing the LIC Bill ideological shift towards restructuring pro-
related to the absence of post-sales service, that there had been a few companies which perty relations was intended by life insurance
very high lapse-ratio, a variety of mal- conducted their affairs well and which nationalisation.
practices to inflate the expenses of manage- observed good standards. But given the Thus nationalisation of life insurance was
ment for the benefit of controllers of social service character of insurance, the not meant to reduce the investible resources
insurance, illegal gains for the controllers record of better managed companies could available to private sector. Its purpose was
through investments of dubious value or not be a reason enough for permitting the to eliminate malpractices, misuse'by malfea-
investments dubiously made or through larger number of malfunctioning units to sance and to render help to the private sector
manipulation of accounts, non or delayed jeopardise the savings and security of the "more rationally, more effectively in a plan-
payments of claims complaints about which policyholders. ned manner."101 Thus, nationalisation was
were generally found true, high rates of Thus one can say that, of their own, only to mean denial of resources to those
premium, etc, the coverage of insurance was through voluntary regulation and as a result who concerned them fraudulently or by
rather limited and highly skewed, among of regulation under a comprehensive and violating existing legal provisions. Its limited
other reasons, on account of the malprac- draconian legislation, the life insurance nature, without cascading effects, was clearly
tices and inefficient functioning of private business in India could neither do justice to recognised.
insurers. As the finance minister suggested, its own specific raige of activities, nor could As a matter of policy, particularly, with
"Insurance companies, by and large, were relate to the rest of the economy in a manner respect to the future use of the nationalisa-
governed by short-term considerations and which was conducive to the attainment of tion option, one important point was of-
consequently, their activities were confined broader socio-economic objectives. Far more ficially made during the course of the debate
to urban areas and there too perhaps to significant to a developing economy like thatover life insurance nationalisation. The
limited categories of people"90 of India was the need to mobilise savings for finance minister argued that the "princ'ipal
Insurance covering people with small in- financing the plans and, through investment point about nationalisation is that the state
comes, offering policies which suit their in- of insurance funds, the need to redirect the does not have to make out a case that the
come and financial position "has not even social savings into priority areas. That is, private sector has failed. Nationalisation is
been attempted".91 Even the provident insurance had a positive role to discharge as justified on many other grounds of ideology,
societies "which prefers to cater to the a financial institution mobilising savings philosophy, and the objectives of a welfare
poorer sections of the community", "have and controlling private investment by plan- state. So it is futile for anyone to take this
hitherto only exploited them".92 They ned investment of insurance funds. As the stand only to this that unless the government
numbered over 500 in the early years of the country was embarking on the Second Five proves as in a court of law that there
century, but dwindled to 71 on the eve of Year Plan with a well-defined industrial have been malpractices over a wide extent,
nationalisation. A majority of them are investment strategy, the life insurance by implication the state has no right to
insolvent or are on the brink of insolvency; business held promising prospects of becom- nationalisation"102 Since control and
their total assets are hardly equal to one ing a useful instrument for furthering plan regulation is negative in character, they can
month's income of one insurance company.'93 objectives and programmes. Nationalisation prevent "what is demonstrably bad but it
A clear indicator of such inefficient func- of life insurance was considered an exten- cannot raise standards'" 03 It was recognised,
tioning was available in the form of frequent sion of the process for this purpose initiatedthat the needs of meeting positive objectives
liquidations and forced mergers of the by the take-over of the Imperial Bank of might make resort to nationalisation essen-
insurance companies, or the need to appoint India.96 tial. Though nationalisation of life insurance
administrators for eleven of them. During As far as the decision to nationalise life was not based on grounds of ideology and
the decade prior to nationalisation, 25 insurance was expected to do away with "far philosophy, as it was based on the need to
insurance companies went into liquidation, too unhealthy an enterprise shown by a prevent misuse of power, position and
another 25 had to transfer their business to numnber of insurance companies"'97 itprivilege was as "the most compelling reasons",
other companies and as many as 75 were not clearly a step towards making private invest- it was also based on a desire to raise posi-
in a position to declare any bonus at their ment in the organised sector in general fall tively the standards of life insurance for
last evaluation. Just on account of liquida- in line with plan programmes. However, this meeting the objectives of the plans. Without
tions, as many as about one-fifth of the total was not meant to restrict the role of private bringing about a rupture with private enter-

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 ECONOMIC AND POLITICAL WEEKLY November 22, 1986
prise, it was intended
tor fall in line with national policies, plan
and priorities in keeping with the overall
logical of the mixed economy model intro-
duced during the early fifties.
IV
Let us now discuss some of the major con-
clusions from our analysis. One very impor-
tant conclusion one can draw from the
experience of nationalising life insurance is insurers for rather longish periods during
that the process of take-over was divided into which the policyholders can hardly exercise
two parts: to begin with the management of
insurance companies was taken-over by
means of an ordinance and later on it was
replaced by an act. In this way manipula-
tion of accounts by the former owners
capable of compromising the objectives of
nationalisation was prevented. This also pro-
vided the government with an objective basis
and accurate data for determining the
amount of compensation payable to the
erstwhile owners. It also can be seen that
similar to the take-over of Imperial Bank of
India, the nationalisation of life insurance
also involved the take-over of some foreign
interests operating in India. Moreover, the
act of nationalisation was also one which
brought under public ownership an impor-
tant activity which displayed a high degree
of concentration, particularly in the hands
of large industrial houses.
It may further be seen that the decision
to go in for the take-over of insurance com-
panies was based on an unannounced, quiet
inquiry spread over a number of years which
showed that neither a voluntary code of con-
duct nor a draconian legislation could make
the private insurers operate with a view to
protect the interest of the policyholders, let
alone the question of utilisation of the
resources from the point of view of the
development of the economy. Moreover, the
insurance business in the private sector
operating under public regulation and con-
trol failed to take life insurance, which is a
very important means of social security, to
a large number of Indians who stood in such
a great need of it.
This act was enacted in such a manner
that it also gave a clear evidence of the
absence of any doctrinaire bias against the
private sector, particularly by means of
exemption of general insurance companies
from the purview of nationalisation despite
widespread prevalence of malpractice similar
to those found in life insurance. Coming as
it did at the time when a new industrial
policy was on the anvil and which gave up
the use of nationalisation as a policy instru-
ment in the industrial sphere, it was essen-
tial that nationalisation of life insurance
should not provide any contradictory signals.
This objective was also served by the manner
in which compensation was determined for
the insurers, so as to dispel fears of con-
fiscatory tendencies. Thus, the nationalisa-
tion of life insurance was enacted in a very
careful manner, to an extent, for fulfilling
the general objectives of the second plan but
without tilting the power and ideological
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to
balance make
in the the private
Indian economy. sec-
record that it was devoid of the sympathy
Another significant conclusion seems to of its customers, workers and public at large.
follow from the foregoing analysis. Many The existence of such a formidable func-
factors necessitated detailed legislative and tional, non-ideological case for nationalisa-
administrative regulation of life insurance tion of life insurance can be cited (as was
business from its inception. It is a business done to great effect by the then finance
minister) to deny any ideological anti-
in which huge amounts of social resources
can be raised with relatively little initial buisiness stance, and the fact that the move
investment. The resources collected from a was not followed by similar decisions with
wide cross-section of society vest with the respect to other similarly placed sectors. In
sum, the nationalisation of life insurance
business carried with it practically all the
any control. This is an investment which is main features of the use of the policy instru-
highly illiquid (or with rather narrow and ment of nationalisation: a political decision
costly exit). The investment pattern of the for the better management of the economy
insurance funds is a critical question both so that the prevailing socio-economic set-up
for the policyholders and for short and long can be continually reproduced.
run macro-economic management. Little
wonder that even the colonial administra- Notes
tion attempted a regime of extensive controls
over life insurers, though its partiality 1 GOI, Ministry of Finance, Report,
towards non-Indian insurers and calculated 1956-57, p 37.
2 "This was the first and preparatory step
absence of a development orientation
towards nationalisation of life insurance
prevented the insurance law and its ad-
in this country." C D Deshmukh, Finance
ministration from acquiring any meaningful
Minister, in the speech in Lok Sabha
dimensions.
on February 29 on the Life Insurance
During the post-independence era, at-
(emergency provisions bill), 1956. Quoted
tempts at effective legislation, adherence to
from Appendix XVIII to Report of the
a voluntary code of conduct and discreet Working Group on Life Insurance Cor-
monitoring were mounted. The results of poration, Administrative Reforms Com-
these exercises compromised the generally mission, New Delhi, 1968 (mimeo), p 621.
prevalent belief that with administrative con- 3 Ray, R M, "Life Insurance in India:
trols and regulation, private sector, irrespec- Perspectives in Social Security", New
tive of its degree of concentration and Delhi, Indian Institute of Public Admini-
horizontal and vertical linkages with other stration, 1982, p 19.
sectors, activities and resource-holders, can 4 Report, 1956-57, op cit, p 37.
be made to function according to social ob- 5 Finance minister's -speech, op cit,
jectives as visualised by a democratic govern- pp 621-22. He elaborated: "Transactions
ment. In the insurance sector was seen a near could be and almost certainly would have
total defeat of the attempts at indirect been back-dated and documents manufac-
steering and regulation. This was an impor- tured to cover even misappropriations that
tant factor which decided the government might have occurred till then. Indeed com-
generally unfavourably disposed towards plaints have reached my ears emanating
nationalisation and keen on giving private from some managements that it was a
sector a large role (as defined in that pity they did not have another 24 hours
Industrial Policy Resolution 1956) to go in in order to adjust the accounts" (p 622).
for the creation of a state monopoly of life The finance minister quoted .an anti-
insurance. nationalisation journal as saying
However, it is possible to give somewhat some businessmen who have been in the
excessive significance to the recalcitrance of habit of speculation in shares with the aid
private sector, making for the virtual in- of insurance companies under their con-
trol have been caught unawares. The prac-
effectiveness of attempts at regulation of
tice of these persons has been to buy or
privately operated life insurance. In many
sell shares first without telling the brokers
other industries, particularly in general
on whose name the contracts are to be
insurance and banking, it might have been
made. If the transaction resulted in a profit
possible to come across similar experiences,
it wasrecorded in their name. If, however,
if the government were to order discreet
it ended in a loss, it was entered in the
enquiries in the manner life insurance
name of the insurance company. It would
business was investigated. Hence, many
appear that at th1e time the government
other additional factors would have to be
nationalised life insurance, some of
called into play from the political, economic
these speculators liad a long position
and ideological spheres for understanding
in a number of well known counters or
life insurance take-over. The newly announc-
securities. As the government gave no time
ed socialistic objectives, the needs to finance for them Lo adjust the books of insurance
public and priv,ate sector industrial pro- companies, Deshmukh seems to have pro-
gramme of the Second Five -Year Plan were fited by his experience of the demonetisa-
two such factors. Possibly there was also the tion ordinance" (pp 622-3\).
need to politically balance the dropping of 6 Life Insurance Corporatio-! of India,
all references to nationalisation in the 1956 Reports and Accounts toi the period
Industrial Policy Resolution by actual take- September 1, 1956 to December 31,
over of a sector which owing to its poor track 1957, p 20.
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 November 22, 1986 ECONOMIC AND POLITICAL WEEKLY
7 Finance minister's broadcast
Ratio on January 19, 1956,practice."
Administrative Reforms Commission
Report, op cit, Appendix XVII, p 617. The 9 Ibid, p 623.
Restrictions were as follows: "it cannot
invest any of the funds of the company 11 Ramkistayya, V, "Problems Related to
save in accordance with instructions given
by the duly authorised officers of the
government, likewise, while the payment
of all claims of policy holders can be made 12 Government of India: ministry of law, The
by the existing management under its own
authority, it must seek the authority of the
authorised person if the payment of claims
From the Statement of the Chairman Mr. N.M. Wagle G
Positive Approach Essential
The harm done by inordinate
ddlay on the part of the
Government in announcing the
new drugs policy has been
aggravated by an inflexible,
sometimes even arbitrary,
approach to the problem of
determining prices of drugs
categorised in the existing
policy as "essential" and "non-
essential". This has frustrated
the primary objective of
securing ample supplies of
medicines to the consufner. The
unwillingness to revise mark-
ups to cover known increases in
cost of inputs is compounded by
agitation by the trade to raise
margins for distribution,
frequently backed by a boycott
of products of companies that
resist the trade's demands
when they exceed levels that can
be absorbed in the inadequate
mark-up allowed to the
manufacturer. When Govern-
ment as a matter of social policy
fixes a lower mark-up for life-
saving or esntial drugs, It
should specify levels of
wholesale and retail margins to
be met out of such mark-up and
forbid any member of the trade
to agitate for higher margins.
This would eliminate disruption
In distributdon by boycott or
other Irregular practices and
ensure ready availability of life-
saving or essential drugs to the
consumer.
The Directors' Report refers to
three new products: griseo-
fulvin, ranitidine and cephalexin
to be manufactured by our
Company. Each product in-
volves very substantial invest-
ment and, although these
projects are under implemen-
tation, we have conveyed our
concern to Government that
permitted prices for these
products should provide for a
fair and reasonable return.
The increase in sales during the
year in all our lines of business
was maintained well. However,
the cost of all inputs continued
to rise to levels where in the case
of pharmaceuticals, in the
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on
is not All-India
in accordance with the normal 13 Ibid, ,section 7, p 4.
reproduced in 14 Ibid, sections 3, 4, 5 and 6, p 3.
8 Finance minister's speech, op cit, p 638. 15 Ibid, section 30, p 13.
16 GOI, ministry of finance, Reports,
10 Ray, op cit, pp 19-20. 1961-62, p 53.
17 The Act, op cit, section 16(1), p 10.
Compensation on Nationalisation of 18 Ibid, The First Schedule, pp 21-26.
Industry', an unpublished PhD thesis of 19 Ibid, sections 16(2) and 17.
Osmania University, Chapter IX, p 380. 20 GOI, ministry of finance, Report, 1957-58,
p 37.
Life Insurance Corporation Act, 1956 (as 21 Ramkistayya, V, op cit, p 227. For a
modified upto June 1, 1959) Delhi, 1958, detailed analysis of the methods of
preamble p 1. computing compensation, see pp 227-240.
absence of significant relief to
enable the rise to be absorbed,
resulted in a marked decline in
profitability. Operations in other
areas, notably special food
products, fared better. Sales of
animal health products and fine
chemicals also showed com-
mendable growth. Increasing
attention is' being paid to these
activities and to proposals for
diversification.
I am glad to announce that, in
the course of the year, the
problem of an onerous export
obligation which had held up the
joint venture project with the
Karnataka State Industrial
Investment & Development th4at oucopay' name shoul
Corporation for the manu-
facture of products derived from
btepcane to reflvec our ipesown,
maize starch was resolved and wider intrestpnys. The Dirletr
work on its implementation is haenplaed forelyou considerma-
now able to proceed. More cetionteadopItion ohrfoe pGLoNDr
recently, the Company has IMtED" asrctheanews name anoud
executed an agreement for abesolution to thalet effec has
another joint venture project, on bieen incluedrintshe noUe tor
this occasion with the Pra-
deshiya Industrial & Investment
Corporation of U.P. to set up a
soyabean complex in the state of shareholders. I would like to
Uttar Pradesh. Both these clarify that the name GLAXO will
projects are In areas which do continue to be used on our
not fall within price control. entire range of pharmaceuticals
They are founded on the to reflect the high intematlonai
Inherent strengths of our standards of quality and
Company and have as their effectiveness for which our
objective the local manufactureCompany's F oducts have long
of Items to which Government had a high reputation. I am glad
attaches Importance. to state that the change In the
corporate name will not affect In
For some time now Glaxo, our any way our veryclose and long-
U.K.associate,has been engaged standing relatfions with Glaxo
in concentrating its efforts
U.K.
internationally in the pharma-
ceuticals business. It has In conclusion, I would l ike to pay
tribute to all the employees for
consequently disposed of its
their efforts during the year and I
interest in other lines and, some
feel lure that you will wish to
months ago, it also sold off its
associate yourself with my
worldwide operations in food
products. The name "GLAXO" is sentiments.
now associated only with
Note: This does not purport to be a
pharmaceuticals. However, our record of the proceedings of the
activities are more wide-ranging Annual General Meeting. For a
and we already have a copy o( the Chairman's fu/ll
significant presence in foods, statement and the report and the
animal health products and fine accounts, please apply to the
chemicals. This presence is Secretary, Glaxo Laboratories
expected to grow steadily, and it (India) Limited, Dr. Annie Besant
is advisable we should take Rtoad, Worli, Bombay 400 025.
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ECONOMIC AND POLITICAL WEEKLY November 22, 1986
22 The Act, op cit, the first schedule.
23 Ramkistayya, V, op cit, p 234.
24 JIhe Act, op cit, p 26.
25 GOI, ministry of finance, Report, 1961-62,
p 53.
26 Compiled from various annual reports of
the LIC and the annual reports of the
ministry of finance.
27 The Indian Insurance Year Book, 1956,
referred to in the following as (IIYB).
28 GOI, ministry of finance, Report, 1957-58,
p 36.
29 IIYB, 1956, op cit, shareholders' capital
was Rs 1.64 crore on August 31, 1956, Ray,
op cit, p 220.
30 From (3) to (7) Ray, R M, op cit, as on
August 31, 1956 for 243 insurers.
31 Ray, R M, op cit, p 20.
32 ARC, op cit, pp 7-8, Bajpai, 0 P,
"Elements of Life Insurance", Kitab
Mahal, Allahabad, 1959, pp 164-65.
33 "Modern life insurance was introduced in
India by certain Engiish companies and it
is generally stated that this happened in
the early parts of the second half of the
19th century"' Presidential speech by
Col J B Singh at the opening of a branch
of the oriental at Ranchi on November 25,
1935. Quoted from Administrative Re-
forms Commission, "Working Group of
Life Insurance Administration", op cit,
p 600.
34 Bajpai, 0 P, "Elements of Life Insurance",
op cit.
35 "The intense swadeshi movement arising
out of a realisation of the enormous grip
which foreign interests have on the
economic sphere of Indian trade, com-
merce and industry gave a fillip to the
development of the Indian insurance com-
panies. It not only enabled the existing
Indian companies to get a larger share of
the business available, but also resulted in
the floatation of several new companies,
some of which are today among the
largest and soundest Indian companies"
Ray, R M, "Life Insurance in India",
Allied, Bombay, 1941, p 27.
36 Bajpai, 0 P, op cit, p 167.
37 Ray, op cit, Chapter II and ARC, op cit,
pp 600-01.
38 Estimates Committee (1960-61), Second
Lok Sabha, 134th Report.of LIC, p 1, also
ARC, op cit, p 602.
39 Bajpai, 0 P, op cit, p 168.
40 Ray, op cit, p 239.
41 Ibid. pp 6-7.
42 See, Ray (1941), op cit, p 31, pp 33-35 for
a list of companies which were amalga-
mated with others. Its Appendix gives
the list of companies which went into
liquidation.
43 Ray (1941), op cit, pp 31-48. Bajpai, op cit,
Ch-lapter 16 and ARC Report, op cit,
.Appendix XVI.
44 ARC R-eport, op cit, p 603.
45 Ray (1941), op cit, p 44.
46 Ibid, "Usually these (English) companies
charged 10 per cent over the European ife examined, the finance minister said, "The
rates for Indian lives. One company
charged the assured Rs 25 extra per
Rs 1000 sum assured at the European life
rates, and allowed this extra to remain as
a debt on the policy at 5 per cent, interest
3.6.73.78 on Tue, 22 Feb 2022 14:18:44 UTC
until the assured reached his expectation
of life according to a table of their
own (p 21).
47 ARC Report, op cit, "So severe was the
competition offered by Indian insurers to
their foreign counterparts that the latter
found it difficult to withstand it and had
to lose their hold by about 40 per cent"
(p 607 and also p 60).
48 Ibid, pp 45-47 and p 23.
49 Ibid, p 603. Also, Ray (1941), op cit.
50 See, Nigam, Raj K, "Interlocking of
Companies between Banking and Otther
Companies", Companyj Notes and News,
October, 1968. Also, GOI "Report of the
Monopolies Inquiry Commission", Vol I,
Delhi, 1966.
51 The state-wise distribution of insurers
registered under the Insurance Act 1938
shows that out of 145 such insurers, as on
August 31, 1956, Bombay had 64, West
Bengal 29, Madras 21 and Delhi 15 and
the combined total of the rest of the states
was only 16. IIYB, 1956.
52 Lok Sabha Debates, Vol 5, 1956, Pt II,
(May 9 to May 30, 1956).
53 IIYB, 1955.
54 See note no 91.
55 Ray (1941), op cit, pp.239-240. Also RBI,
Banking and Monetary Statistics of India,
Bombay 1954, section 11 on insurance
company, pp 916-17.
56 Ray (1941), op cit, p 35.
57 Banking and Monetary Statistics, op cit,
p 916: "Theact required every company
engaged in life insurance business to make
with government an initial deposit of
Rs 25,000 or an amount equal to one third
of the income derived from life assurance
business as shown in the revenue accounts
for the last financial year, whichever is
greater; this sum should be raised to Rs 2
lakh in the manner prescribed in the act
(section 4)". Ray (1941), op cit, said, "Thus
company promoters who could scrape
together a sum of about Rs 25,000 towards
first deposit could float a company"
(p 241).
58 Ray (1941), op cit, pp 240-241.
59 ARC Report, op cit, p 917.
60 Idem.
61 Idem.
64 Ibid, p 244.
65 ARC Report, op cit, p 606.
66 lbid, pp. 244-247.
67 Ibid, pp, 247-253.
68 RBI, Banking and Monetary Statistics,
op cit, p 916.
69 Idem.
70 ARC Report, op cit, p 606.
71 Ray, op cit, 263.
72 The Insurance Act, 1950.
73 Ibid.
74 Speech of the finance minister in the Lok
Sabha on the Life Insurance (EP) Bill, 1956,
as reported in ARC Report, op cit, p 626.
75 Idem.
76 Ibid, p 625. Elaborating on the question
question we posed to ourseives were: was
life insurance functioning in India in the
most efficient manner possible so as to
attract the savings of the average man to
maximum extent? If not, what was it that
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prevented if from doing so'? (p 626).
77 Idem, emphasis added.
78 "The insurance companies hold con-
siderable shares in many industrial under-
takings. So much so that through nationa-
lisation, government will be able to
establish control over sizoable section of
the private sector' Sadhan Gupta in Lok
Sabha Debates, 1956, Vol 5, part 1I.
79 Hence we do not give references details for
each specific points.
80 Finance minister's speech in LokSabha
(referred to as FM (1956) later on), p 628.
81 Ashok Mehta in Lok Sabha Debates,
op cit.
83 Ibid, p 629.
84 ARC Report, op cit, Appendix XVII,
p 616.
85 Finance minister's speech, op cit, p 634.
86 Lok Sabha Debates, op cit, Ashok Mehta's
speech.
87 Ibid, p 633.
88 Ibid, p 635.
89 See, also Bajpai, 0 P, op cit, pp 183-88.
90 Finance minister's speech, op cit,
pp 631-32.
91 Ibid, p 631. It was pointed out that this.
class of business forms 40 per cent of the
life business in the UK and 35 per cen. in
Germany, idem.
92 Idem.
93 Idem.
94 Ibid, pp, 629-30 and 635.
95 Parliamentary debates, op cit.
96 "With a second Plan in the offing, involv-
ing an accelerated rate of investment and
development, the deepening and widening
of all possible channels of public savings
has become more than ever necessary,
of this process the nationalisation of
insurance is a vital part" Finance minister's
broadcast, op cit, p 612.
97 Ibid, p 615. It was further clarified that
the misuse of power, position and privilege
that, we have reason to believe, prevails
under existing conditions is one of the
most compelling reasons that influenced
us in deciding to nationalise life insurance.
Ibid, 619.
98 Ibid, op cit, 618-19.
99 "Were that so (doctrinaire dislike of private
enterprise), we would not have left alone
the other big sector, the general insurance"
Ibid, p 619.
100 "Malpractices in general insurance sector
are more rampant than in the life insurance
sector. If general insurance had been
nationalised, we would have got a lot of
investible funds. Many of the foreign con-
cerns would have been eliminated by tak-
ing over general insurance. There are 61
Indian general insurance companies as
against 88 foreign companies" Sadhan
Gupta in the course of Lok Sabha Debates,
op cit.
101 Lok Sabha Debates, op cit.
102 Lok Sabha Debates, finance minister's
speech on March 19, 1956 on the Life
Insurance Corporation Bill, 1956,
reproduced in ARC Report, op cit, p 613.
103 Finance minister's speech on the Life In-
surance (emergency provision) Act, 1956,
op cit, p 632.
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