Big Bang Reform 2:Cabinet clears FDI in insurance, pension sector

By | October 4, 2012 6:23 pm

New Delhi:  Determined to prove the economy is in turn-around mode, the Cabinet has cleared a new installment of big-bang reforms. The plan is to allow more Foreign Direct Investment or FDI in the pension and insurance sectors.


  • What the cabinet approved: Raising the cap on FDI in insurance from 26% to 49%, and allowing up to 26% in the pension sector.
  • Allowing more FDI in insurance will mean the government has ignored the advice of a parliamentary committee headed by BJP leader and former finance minister Yashwant Sinha. It was a unanimous decision by the standing committee, which means the Congress MPs on the panel also agreed to the decision.


  • The Left and Trinamool Congress chief Mamata Banerjee are opposed to FDI in both sectors. Expressing her opposition to the reforms, Ms Banerjee posted on her Facebook page today, “In the name of reforms, loot chalche loot (Loot is going on). To suppress it, jhoot chalche jhoot (lies are being told).”


  • On pension reforms, the BJP had earlier indicated that it may back the reform if the government fixes the limit on FDI in its legislation.  This ensures that in future, if there is a move to increase the cap on FDI, Parliament’s approval is necessary.  However, BJP’s Shahnawaz Hussain said today,  “The government has been sleeping for 8 years and seems to have suddenly woken up,” accusing the government of wanting to divert attention from corruption charges.


  • If the amendments to the current guidelines are brought to Parliament, the government may be able to lean hard on allies for support. External partner Mulayam Singh Yadav who has 22 Lok Sabha MPs will play a crucial role in whether the reforms go through.  In the Rajya Sabha, the government is in a minority, and that’s where it could trip. CPI’s Gurudas Dasgupta told NDTV that while the Left parties would do their best to stop the passage of the insurance bill in Parliament, it was unlikely to succeed. “Congress knows the art of managing the numbers. The entire corporate world is behind them. So therefore they have the resources to get the support,” he said.


  • The proposals on FDI in insurance and pension were floated by Pranab Mukherjee when he was Finance Minister, and were 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. He said on Wednesday in an interview to BBC, “I think we will return to 9 per cent growth once we address certain fundamental constraints and as we address these issues and our savings rates grow up, investment rate grows up to 37-38 per cent, we will return to 9 per cent growth rate.”


  • Insurance reform is widely seen as crucial because credible estimates say  the sector needs a capital infusion of over Rs. 62,000 crore 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. Reinsurance is the insurance that is purchased by an insurance company to insure the assets that it is covering.


  • The Cabinet also cleared the revised draft of the Companies Bill. The new Bill mandates companies-subject to certain levels of profit, turnover or net worth-have to spend 2 per cent of their average profits over three years on corporate social responsibility (CSR) activities. The Bill will now be introduced in the winter session of Parliament.


  • Three weeks ago, the government raised the price of heavily subsidised diesel and cut supplies of subsidised cooking gas despite strong political opposition, including from within the ruling coalition. It also opened up the retail sector to global supermarket chains, allowed foreign airlines to buy stakes in local carriers and raised the bar on foreign investment in broadcasting.Mamata Banerjee’s Trinamool Congress quit the UPA government of Dr Manmohan Singh in protest a week later.  That change in policy was enacted as an executive decision and did not need a vote in Parliament.


Leave a Reply