Fresh registrations for systematic investment plans (SIPs) in January 2013 declined to 82,000 from 1,02,000 in December 2012, taking the number of live SIP accounts down to 2.55 million from 2.60 million in the previous month
Mutual fund sales may have increased in January 2013, but the count of systematic investment plans (SIPs) processed declined marginally compared to the month of December 2012, according to an industry report by Karvy Computershare. The total number of live SIP accounts declined by 52,000 to 25.49 lakh in January 2013 from 26 lakh in December 2012. The month January had not been so good for the Industry with regard to SIP investments. The number of SIPs processed fell by nearly 6,000 and the average SIP amount increased marginally to Rs1,891 from Rs1,836 in December 2012. What’s striking is that the count of SIPs cancelled or terminated in the month of January 2013 more than doubled to 1.28 lakh accounts from 53,000 in December 2012. Fresh registrations also declined from 1.02 lakh to 82,000. The high number of cancellations coupled with an increase in average ticket size shows that these cancellations are dominant in the lower SIP investments.
On breaking up the SIP accounts into the amount of investment, “the less than Rs1,000 slab of SIP investments is slowly losing its domination and live SIP investors in this slab has dropped from 65.55% to 64.99% during January 2013. This percentage has gone up across all other SIP investment slabs,” mentions the report. Even on looking at the fresh SIP registrations, a significant higher number than the average has started to come from the slabs above Rs2,500.
Though some investors have started to invest more in SIPs there is still a huge amount of SIP accounts getting closed. This is not a new trend. Nearly a year back Moneylife had first reported about the decline in SIP accounts (Read: SIPs are not selling. A wake up call for Sebi?). Data from Computer Age Management Services (CAMS), a registrar of mutual funds, showed a decline in interest in SIP. A few months later, another report from the registrar showed that net SIP registrations have been a negative figure each month from April 2012 to September 2012 (Read: Mutual fund SIPs decline further. Who is to blame?). The SIPs ceased or expired has been a greater number than new SIP registrations leading to a decline of nearly 3.09 lakh SIP accounts despite the fact that the number of new SIP registrations was showing a rising trend from June 2012 to September 2012.
Mediclaim policyholders are often subjected to a nasty surprise over partial and arbitrary settlement of claims. Different amounts are approved for same procedure at the same hospital. Why should the insured not have clarity on how much the insurance company will reimburse?
Mediclaim policyholders with cashless or reimbursement claim get a rude shock when the insurance company/third party administrator (TPA) approves partial amount for payment. In the cashless mode, you may have time to raise concerns and get higher amount approved before your procedure is done. In reimbursement mode, you have already left the hospital after the procedure and the only option is to continue your fight with the insurance company or give up.
In most cases, the insurance company will turn a deaf ear and show the “take it or leave it” attitude. So, you end up accepting the offer and keep quiet or get dragged for a long battle at the insurance ombudsman or consumer court. Are pre-declared package rates in a policy document a solution to arbitrary claims settlement? You will know what is paid by the insurer for the 42 standard procedures before you step inside the hospital.
Technically, if there is a proper contract between the hospital and insurer/TPA, cashless treatment should not have issues of partial amount approval. This is because the insurance company/TPA has already negotiated the rates with the hospital and hence ambiguity should not arise. But, there are numerous cases of cashless approval wherein the TPA may approve an amount lower than the hospital rate. Even with no fault of your own, you may have to face the brunt of under-approval by the TPA or over-charging by the hospital.
To add to the woes, government insurers stopped offering the cashless facility to the consumer since July 2010 in many of the leading hospitals. This impasse is primarily due to the inability of the insurers and medical fraternity to agree on package rates for the cashless facility. This has caused immense physical and mental hardships and financial strain to the consumer for almost three years now.
If cashless claim is out of question for the policyholder, reimbursement is a drawback for the policyholder as it means paying the hospital first and then receiving reimbursement from the insurance company. Many policies have room-rent and other restrictions, but even policies with no such restriction may not get the full amount approved simply because the hospital charges more than “reasonable and customary”. The insurer knows what it should pay for a specific procedure done in a particular type of hospital. It will also consider the room type where the insured stayed and city where hospital is located. The policyholder has no idea about what will be paid by the insurer and there starts the trouble for the insured.
If the package rate is known in advance, consumers can search for a facility which fits their budget and may even be able to negotiate with the doctors. There is a real need for it as Association of Hospitals and Bombay Nursing Homes Association submitted to the Bombay High Court that it cannot give fixed package rates and it is better for insurers to pre-declare package rates in their policy documents. AMC (Association of Medical Consultants) submitted to the Bombay High Court a document outlining its bracket rates stating that the rates are not meant to be a cap or limit to the fee of a professional and that the doctor’s professional charges if higher may have to be borne by the patient himself or herself. Considering these facts, it makes sense if the Insurance Regulatory and Development Authority (IRDA) asks insurance companies to pre-declare the rates for the 42 standard procedures in the insurance policy document.
Here is an example that works on similar lines: CGHS (Central Government Health Scheme) provides retired government employees fixed package amounts for standard ailments, as fixed by the government, by taking into consideration various factors like cost of treatment, doctor’s fees, etc. These retired employees can take treatment from any hospital of their liking (outside the government network). They know in advance how much minimum amount they will get, giving further transparency and uniform applicability in the interest of justice.
Social activist Gaurang Damani has submitted the Additional Affidavit for his PIL (public interest litigation) in the Bombay High Court and the same has been served to IRDA on 4 April 2013 and to the Union of India on 5 April 2013. The prayer states, “IRDA can help achieve the whole object of this petition, by making a part of the regulations, that insurers pre-declare fixed package rates in the consumer’s policy documents. Each insurer can be free to set its own fixed package rates for the standard 42 ailments, depending on market forces and their internal efficiencies and processes. There should be no objection for applying these fixed package rates to the medical insurance policy holders as this will not only result in minimum disputes but also in hassle-free early settlement of claims. It is prayed that IRDA will consider positively the aforesaid prayers and will carry out the necessary amendments to the gazetted regulations in the interest of justice.”
Read: Do IRDA health insurance guidelines really disallow claims settlement by TPAs?)
CPI inflation is expected to moderate from 10.9% currently to around 7% by March 2014 as the government’s steps to correct the bad growth mix (high fiscal deficit and low investment spending) have been showing some results, says Morgan Stanley in its India Economics report
Recent macro data have continued to concern investors. Growth has slowed to a 10-year low but macro stability indicators such as, CPI (consumer price index) based inflation and the current account deficit have continued to worsen. These observations were made my global investment bank Morgan Stanley in its India Economics report.
Trailing macro data points are a cause of concern for investors, but the investment bank believes that the worst may be over. The government’s steps to correct the bad growth mix (high fiscal deficit and low investment spending) have been showing some results. This will help to gradually improve the macro stability indicators. Looking as these factors, Morgan Stanley says that CPI inflation would be most important to assess the macro outlook.
Explaining the importance of CPI inflation, the Morgan Stanley reports says monthly CPI inflation is a conclusive measure of trends in underlying growth mix and productivity while WPI (wholesale price index) based inflation is not fully representing underlying inflation pressures in the economy. CPI inflation is a conclusive measure of trends in underlying growth mix and productivity, which is critical to determine gold imports and the current account deficit. A sustainable reduction in interest rates would be likely to follow CPI moderation, the report adds.
Recent macro data have remained concerning, states Morgan Stanley. GDP growth for the quarter ending December 2012 was 4.5%, the lowest since the quarter ending March 2009 (on a quarterly basis). …but trailing macro stability indicators such as CPI inflation and the current account deficit have continued to worsen. WPI inflation has been moderating, but CPI inflation (new index) rose to 10.9% y-o-y in February 2013. Similarly, the current account deficit too widened to an all-time high of $32.6 billion (6.7% of GDP) in the quarter ending December 2012.
Four reasons why CPI inflation is key to India’s macro outlook
Reason 1: WPI inflation is not fully representing underlying inflation pressures in the economy
In the past, price levels as measured by WPI and CPI (Industrial Workers) usually tracked similar trends—but over the last three years a huge gap has opened up. To be sure, the Reserve Bank of India (RBI) has always maintained that it looks at all price statistics —including WPI, CPI and GDP deflator—in assessing inflation trends.
The gap in the price levels is not just because of the higher weight of food in CPI and higher food inflation. Non-food CPI levels have also persistently been higher than WPI/non-food WPI. Indeed, the gap between non-food manufactured WPI (which represents 55% of overall WPI) and CPI has been extremely large. Morgan Stanley says that each of these indices covers different items and their weighting patterns are also different. The idea behind using core inflation is to exclude the volatile components.
The RBI paper on this topic, had said, “The main argument here is that the central bank should effectively be responding to the movements in permanent components of the price level rather than temporary deviations. In Indian context, the derivation of core inflation by exclusion of food and energy from CPI/ WPI discards a substantial portion of the commodity basket. Although these prices have substantial effects on the overall index, they are often quickly reversed. But the reversal of volatile prices sometimes is not short-lived. Thus, determining when to use a core inflation measure versus an overall inflation measure is a complex issue.”
To the extent that the gap between price levels as measured by CPI and WPI/Core-WPI has been persistent and rising, Morgan Stanley finds WPI/ Core WPI inflation insufficient to assess the outlook for inflation expectations. Moreover, WPI core inflation is highly influenced by global commodity prices; these represent raw materials and intermediate good prices more than finished goods.
Reason 2: CPI Inflation is a conclusive measure of trends in underlying growth mix and productivity
Persistently high inflation expectations since the credit crisis are the result of the bad growth mix pursued by India’s policy makers. This mix has been characterized by a high national deficit remaining in the range of 8.5%-10% of GDP (excluding one-off telecom revenues), and a significant decline in the ratio of private investment to GDP at the same time. This approach of fiscal expansion supporting consumption – thus pushing up aggregate demand at a time when private investment (aggregate supply) was declining—has fed back into persistently high inflation.
Moreover, some of the policy decisions not only resulted in a higher government deficit but also distorted the productivity dynamic. For instance, the national rural employment scheme has been one of the key factors pushing rural wages without matching gains in productivity—pushing inflation higher. Rural wages, which constitute a high proportion of food production costs, have been adversely affecting food inflation. Food has a weighting of 47% in the CPI, so sharp gains in food prices have been the key factor contributing to persistent prices pressures.
Reason 3: CPI inflation trend is critical to determining gold imports and the CAD
Net gold imports have risen from an average of close to 1.2% during 2003-07 (when CPI-IW inflation averaged 4.8%) to about 3% of GDP in the last two years (with CPI inflation averaging 9.3%). The key factor driving this rise in gold imports has been persistently high inflation expectations driven by bad growth mix, according to Morgan Stanley. There is also a debate as to whether gold prices have influenced gold imports, but the movement in gold prices has been a less influential factor. For example, gold prices almost doubled between 2004 and 2007—but gold imports as a percentage of GDP remained unchanged. Historically gold imports have moved inversely to real interest rates. Persistently high inflation expectations since the credit crisis, leading to negative real interest rates, have encouraged higher gold imports.
Presently, though WPI inflation has started to moderate since October 2012, CPI inflation (a better indicator for inflation expectations) remains elevated—and this is keeping gold imports high.
Reason 4: A sustainable reduction in interest rates would be likely to follow CPI moderation
Morgan Stanley opines that policy rate cuts are not likely to be fully effective until a meaningful deceleration in CPI inflation and improvement in deposit growth is notices. High CPI inflation and negative real interest rates have hampered deposit growth, keeping the credit-deposit ratio elevated. Indeed, deposit growth decelerated to an average of 13.7% y-o-y during the quarter ending March 2013 from 18% at the beginning of F2011.
Households tend to increase allocation to physical savings (including gold) when real interest rates are negative. The RBI has reduced policy rates by 50bps since January 2013, but this has yet to translate into meaningful reduction in lending rates by banks. If credit and deposit growth are at current levels, the credit-deposit ratio will continue to move up on a seasonally adjusted basis.
The investment bank expects CPI inflation to moderate from 10.9% currently to around 7% by March 2014. It has justified this with five key factors: 1) lagged impact of slower government spending growth; 2) deceleration in rural wage growth; 3) slower rise in global commodity prices, particularly oil; 4) moderation in asset prices, particularly housing; and 5) slower growth in domestic demand.
However, the Morgan Stanley report cautions that any sharp increase in government spending again before the elections; any policy move from the government that begins to accelerate rural wage growth again; or A spike in global commodity prices could lead to a reversal of the trend.