Thursday, October 4, 2012

Big bang reforms again: Cabinet allows FDI in insurance, pension sectors

In a second round of bold reforms , the government today took big steps to open up the insurance and pensions sectors to foreign investors and prove it's determined to push the economy into turn-around mode. However, these proposals will have to be cleared by parliament. Opposition parties are against the reforms; so, supposedly, are some allies of the government. Here's your 10-point cheatsheet to this big story:

1.The cabinet has proposed allowing up to 49 percent Foreign Direct Investment or FDI in Indian insurance companies -- up from 26 percent previously. In the pensions sector, previously closed to outside investors, foreign groups will also be able to buy upto 49% equity. Mr Chidambaram said FDI in pension would mirror that in insurance - so if Parliament clears 49% FDI in insurance, 49% would be allowed in pension too.


2.The Insurance Laws (Amendment) Bill is likely to be taken up by Parliament when it meets for the winter session. A parliamentary committee headed by BJP leader Yashwant Sinha had studied the proposed changes and was not in favour of raising the cap on FDI to 49% partly because it could expose the economy to global downturns.

3."The benefit of this amendment will go to the private sector insurance companies which require huge amount of capital," Finance Minister P Chidambaram said. He said state-run insurance companies will be off-limits to FDI.

4.The pension and insurance bills have been proposed for nearly a decade. Most of India's 24 insurance companies have lost money in the past decade, hit by restrictions on foreign holding and by regulatory changes.

5.Anticipation of the reforms being green-lit by the cabinet drove the BSE Sensex to a 15-month high, while the Nifty hit a 17-month high.

6.The Congress will now have a tough fight in pushing the new policies through parliament. The government is in a minority since Mamata Banerjee exited the ruling coalition over the decision to allow huge multi-brand retailers such as Wal-Mart to own 51 percent of retail stores in the country. The DMK the second-largest party in the coalition after Ms Banerjee's withdrawal, is opposed to FDI in retail, insurance and pension. The external support offered by Mulayam Singh Yadav and his Samjawadi Party is crucial, but he is generally opposed to foreign investment.

7.The BJP has said it will wait for details, and has hinted it is not totally opposed to the new reforms. "Unless we see fine print, we can't give final comment. We had given cooperation in these two issues, provided that our concerns are taken into consideration,' party spokesman Prakash Javadekar said carefully. Finance Minister P Chidambaram has also said "There is room for negotiation."

8.The Left and Ms Banerjee are opposed to FDI have slammed the government. Ms Banerjee has been threatening to ask for a no-confidence vote against the Prime Minister in the next session of parliament.

9.The cabinet has cleared the 12th -five-year plan today, the country's economic blueprint. It will now be reviewed by before the National Development Council (NDC), which consists of the PM, his cabinet, and all chief ministers. The growth rate has been scaled down to 8.2 per cent from 9 per cent envisaged earlier.
10.A new Companies Bill was also adopted, which would introduce concepts like corporate social responsibility, class action suits and a fixed term for independent directors to make corporate governance more transparent to share-holders.