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Open up fast to draw FDI, says Swiss Re chief

Freny Patel in Mumbai

The Indian government will need to move fast if it wishes to attract more foreign direct investment into the country, especially in the financial services sector.

This follows the capital constraints faced by the global financial services players, undergoing hard times post September 11 and the Enron accounting crises, said the chief executive for the Asian division of reinsurance giant Swiss Re, Pierre L Ozendo.

While global majors are looking favourably at Asia considering the attractive growth rates of 10 per cent, Ozendo said these markets need to be liberalised fast. Global financial companies are currently recouping their losses, and have limited capital to fund new ventures.

There is a heated debate on enhancing the foreign holding limit from the present 26 per cent in the Indian insurance sector.

While Indian and foreign partners are keen to permit foreign companies to hold a higher stake in the Indian joint ventures, the government remains indecisive over the issue despite the recommendations made in the N K Singh Committee report.

Many global financial majors are forced to reduce their equity exposure, said Swiss Re's chief economist Thomas Hess. "They cannot afford to invest so much as they will not be able to make profits," he said.

The global equity meltdown has affected all companies' ability to raise capital and returns from the stock market.

This is true of investment bankers, banks and insurance companies, which are all undergoing hard times.

"Investment banks' earnings have partly come from stock market gains in terms of initial public offers. In the present stock market conditions, it will be tough for them to earn money in these times as they cannot influence investment results," said Hess.

Insurance companies have lost considerable market capitalisation following September 11 and the accounting crises. Their scrips have fallen by 50 per cent from their peak. Swiss Re recorded a loss of 40 per cent of its value, said Hess.

The global non-life insurance industry alone has lost $186 billion, translating into 25 per cent of its overall equity capital, he added.

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