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Indian gov't approves big-ticket reforms
Publication Date : 05-10-2012
Unleashing a fresh wave of economic reforms after reeling under a perception of policy paralysis for long, the Congress-led United Progressive Alliance (UPA) government yesterday approved a slew of big-ticket legislative measures.
The measures include proposing to open up the pension sector to foreign direct investment (FDI), raising the FDI limit in insurance, and clearing major amendments in the Companies Bill, the commodity markets legislation and the Competition law.
These decisions were taken by the Union Cabinet, headed by Prime Minister Manmohan Singh, a few weeks after its move to hike diesel price, cap subsidised LPG cylinders, and allow FDI in multi-brand retail set off a political storm across the country with both the opposition and the government’s own allies rising against them.
The Cabinet decided to raise the FDI cap in the insurance sector from the existing 26 per cent to 49 per cent. Seeking to open up the pension sector to FDI, it also set the FDI ceiling at “26 per cent or such percentage as may be approved for the insurance sector, whichever is higher may be incorporated in the present legislation.”
The Parliamentary Standing Committee on Finance, headed by BJP (Indian People's Party) leader Yashwant Sinha, had suggested FDI in pension with a cap of 26 per cent. The committee had also rejected the proposal to hike the FDI cap in insurance to 49 per cent, stating this might not achieve the desired objective and could expose the country’s economy to global vulnerabilities.
The pension and insurance amendment bills have been hanging fire for several years due to lack of political consensus. During the UPA-I tenure, its then outside supporters, the Left parties had blocked them.
And, during the current UPA-II government, the Trinamul Congress had opposed them. In protest against the government’s fuel and FDI-in-multibrand-retail decisions, the Trinamul has already walked out of the government and withdrawn its support.
Finance minister P Chidambaram, briefing reporters, said the government would reach out to political parties, especially the principal Opposition BJP, in seeking their support for passage of the bills on insurance and pension sector in the Winter session of Parliament.
A question mark would however hang over the fate of these two and other newly-cleared amendment bills, which already drew fire from the Left parties as well as the Trinamul chief, Mamata Banerjee. The BJP was not immediately up in arms, but it also expressed reservations.
The BJP has said that while it is not opposed to FDI in insurance and pension, it would like to see the “fine print” of these Bills before taking a call on them.
Chidambaram, however, said: “We have accepted the bulk of the recommendations of the Standing Committee headed by a senior BJP leader. I am optimistic that all parties, especially the principal Opposition party, will support the legislations.”
Chidambaram said, “The FDI limit in pension will follow FDI limit in insurance. If insurance Bill passes with 49 per cent, pension will also be 49 per cent....That has always been the structure of the bill that whatever cap has been put on insurance will also apply to pension.”
He clarified that FDI in insurance and pension would not apply to public sector companies. He added that foreign reinsurers will be permitted to open branches only for reinsurance business in India and the provisions of Section 27E, which prohibit an insurer to invest directly or indirectly outside India the funds of policyholder, would apply to such branches. To encourage health insurance in India, the capital requirement for a health insurance company is now proposed at 50 crore rupees (instead of 100 crores rupees for general insurance companies). (One crore is equivalent to 10,000,000.)
The proposed Forward Contract Regulation Act (Amendment) Bill (FCRA), cleared by the Cabinet, would empower commodity markets regulator, Forward Markets Commission, with greater financial autonomy, facilitate the entry of institutional investors and introduce new products for trading such as options and indices. The FCRA Amendment Bill had earlier repeatedly been blocked by the Trinamul when it was part of the UPA.
The new Companies Bill proposes a thorough overhaul of the existing laws while the amended Competition legislation seeks to bring all sectors under its purview, except involuntary mergers in areas like banking and insurance which are already regulated.