The government is looking to push the Insurance Amendment Bill, to allow 49% foreign investment in the sector, during the current session of Parliament, in what is being seen as a move to signal its eagerness to get on with business.
An increase in the ceiling for the insurance sector will automatically translate into a similar limit for the pension business. The government expects inflows of $6-7 billion into the two businesses, which are seen as key to generating long term funds to finance infrastructure projects. Typically , individuals invest in insurance and pension schemes with a 2030 year horizon and this money is then invested in long-term instruments such as government securities and corporate bonds with a small portion also flowing into the stock markets.
Sources said the Union cabinet is scheduled to discuss the Bill on Thursday and with the Congress too pledging its support, the long-overdue move will increase the ceiling from the current level of 26%. While the BJP has a majority in the Lok Sabha, it needs support from the Opposition parties in the Rajya Sabha where it lacks the numbers.
The move comes even as the Centre is finalizing the proposals for higher foreign investment in several sectors, including defence, construction and railways. The sources also said that the government is considering Congress’ suggestion for a vetting of foreign investment proposals by the cabinet committee on security , in addition to FIPB, while allowing 49% FDI.
Finance minister Arun Jaitley had announced the government’s move to increase the limit in his Budget speech but there was speculation around certain clauses in the Bill, including a cap on voting rights. But, officials had indicated that Jaitley is against putting too many restrictions and only wants proposals to be vetted by the Foreign Investment Promotion Board (FIPB) to ensure that control remains in Indian hands.
The insurance industry has been critical of the government’s move to move from the automatic route -which requires foreign companies to merely inform the Reserve Bank of India after making an investment -to FIPB, saying it will increase the burden.
But, going by its experience over the past 14 years, the government has now decided to actually enforce the rules. Most foreign players, which have entered India through the joint venture route, have put in place clauses that give them greater say in board-level decisions as well as on key appointments, including the managing director and CEO.
Similarly , they had built in a pricing mechanism for shares to deal with the situation of an increase in the FDI cap. The government is now keen to avoid a scenario where the control actually is with the foreign investor despite it being a smaller partner in the venture.
Source : The Times of India
Date : 24/7/2014