The government is all set for its next round of big-ticket reforms; the Cabinet is expected to approve a proposal today to hike the cap on Foreign Direct Investment (FDI) in the insurance sector from 26 per cent to 49 per cent and to open up the pension sector to FDI. If okayed, these will be brought in Parliament in the Winter Session in December this year.
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Unlike the reforms the government pushed last month, these bills - the Insurance Laws (Amendment) Bill 2008 and the Pension Fund Regulatory and Development Authority (PFRDA) Bill 2011 - will have to be approved in Parliament after the Cabinet has okayed them. The government might be able to cajole UPA allies and even external partner Mulayam Singh Yadav to help it through in the Lok Sabha, but just does not have the numbers in the Rajya Sabha.
So to push this set of reforms through, it will need the help of opposition parties like the BJP. The BJP has earlier indicated that it could support the government on FDI in pension if it agrees to its formula - to specify in the Bill how much Foreign Direct Investment it will allow - which the government is reportedly ready to do. But the opposition party is against opening up insurance any further.
Mamata Banerjee, whose 19 Lok Sabha members walked out of the UPA government last week, is against the move to allow more FDI in either sectors. So are the Left parties. They will all vote against these Bills. "The government is selling out the country and "all that is left to do are bringing the insurance and pension bills which will hit the government employees," she said at a rally this Monday.
Mulayam Singh Yadav, who provides external support to the UPA government and is crucial now to push legislation after the Trinamool walked out of the UPA, is for now opposed to the Bills, but then the Samajwadi Party chief can really never be counted on any side till he has cast his vote.
The proposals on FDI in insurance and pension was floated by Pranab Mukherjee when he was finance minister, and was sent to the Cabinet for approval in May this year, but the decision was deferred, underlining the difficulty the Centre faced in driving reforms. P Chidambaram took over as Finance Minister in July this year and immediately resurrected the move.
A parliamentary standing committee headed by the BJP's Yashwant Sinha had last year asked the government not to raise FDI in insurance and pension. Insurance reform is widely seen as crucial because, according to Insurance Regulatory and Development Authority (IRDA) estimates, the sector needs a capital infusion of over 62,000 crores or $ 12 billion over the next five years.
Domestic and foreign insurers, who have invested much money in India over the last decade, have been lobbying the government for years to raise the FDI limit to 49 per cent from 26 per cent. Along with raising the FDI limit, the insurance amendment bill aims to strengthen regulation of the sector and allow foreign re-insurers to enter the Indian market.
India has 24 life insurance companies and an equal number of general insurers. On Monday, P Chidambaram announced a revival package for the life insurance sector. The package includes easing investment norms for insurers, faster clearance for new products, easing of procedures and allowing banks to sell products of more than one insurance company.
The Cabinet will also consider today the final draft of the Companies Bill 2011, which has been prepared after considering recommendations of the Standing Committee and comments from the finance and law ministries as well as the Planning Commission. As per the proposals, companies, subject to certain levels of profit, turnover or net worth, have to spend about 2 per cent of their average profit over three years towards Corporate Social Responsibility activities. Among others, the new Bill provides more powers to the Serious Fraud Investigation Office.
Only 20 days ago, on September 13, the Cabinet had approved the controversial proposal to allow 51 per cent FDI in multi-brand retail, besides relaxing FDI norms for civil aviation and broadcasting sector. Mamata Banerjee quit the UPA government of Manmohan Singh in protest a week later.
