New Delhi (TIP): The government on October 4 unleashed a second wave of reforms deciding to open the pension sector to foreign investment and raising the FDI cap in insurance to 49 percent, undeterred by opposition to its decisions on FDI in retail and threats to block these legislations.
The Union Cabinet cleared a raft of big-ticket legislative proposals including the new Companies Bill, amendments to Competition Act and Forward Contracts (Regulation) Act.
“The Cabinet has approved necessary official amendments in the Insurance Laws (Amendment) Bill,2008…It also approved introduction of certain official amendments to Pension Fund Regulatory and Development Authority Bill, 2011.
“We hope these will be passed in the next session of Parliament,” Finance Minister P Chidambaram told reporters while briefing on the Cabinet decision.
Apparently anticipating resistance, Finance Minister P Chidambaram 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.
Trinamool Congress, which a fortnight ago withdrew support to UPA, and the Left parties vowed to defeat these bills in Parliament.
Significantly, the Cabinet decided to fix a cap of 49 percent of FDI in the insurance sector raising it from 26 percent. While doing this, it straightaway took the cap in the pension sector to 49 percent saying it generally follows the insurance sector.
The 49 percent cap is much higher than the 26 percent recommended by the Parliamentary Standing Committee on Finance headed by BJP leader Yashwant Sinha.
Asked how confident the government was about getting these bills cleared, Chidambaram said, legislation is a process of negotiations and discussions with political parties and reaching a consensus.
“We are fully aware of the Standing Committee’s recommendations. However, at the same time, taking an objective view of the situation, we will have to sit and talk with political parties,” he said.
To a question about the absence of ministers belonging to allies DMK and NCP and whether they would support these legislations, he shot back, “why should you assume they will not support?”
“We will reach out to all political parties, especially principal opposition party, to get the reforms bill passed (in Parliament)”, Chidambaram said while briefing reporters about the decisions by the Cabinet.
While BJP was ambivalent in its reaction to the government’s decisions on whether it would support the bills, Chidambaram said, “We have accepted 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.”
He noted the statement of BJP President Nitin Gadkari that though they opposed FDI in retail, the party would support in many other sectors.
Replying to questions, Chidambaram said, “The FDI limit in pension will follow FDI limit in insurance. If insurance bill passes with 49 percent, pension will also be 49 percent.”
“That has always been the structure of the bill that whatever cap has been put on insurance will also apply to pension.
“It is not unusual. Insurance and pension are long-term savings and funds,” he said explaining the rationale behind the decisions.
The Minister clarified that the enhanced FDI cap in insurance and pension would not apply to public sector entities.
“Public sector insurance companies will adopt government policy and will remain public sector companies,” Chidambaram said.
He said he has handed over a list of bills that deserve to be passed to opposition leaders.
“We will now discuss the official amendments with the principal parties. Legislation making in a Parliament where government does not have majority is a process of discussion and negotiations.
“Many bills have been passed after discussion and negotiation with opposition parties, especially the principal opposition. But I don’t think we should start on a premise that there would be a consensus, will not be a agreement on the floor of the house,” he said.
The Pension Fund Regulatory and Development Authority (PFRDA) Bill, cleared by the Cabinet, seeks to open up the pension sector to FDI. The FDI cap could go up to 49 percent.
The Insurance Laws (Amendment) Bill seeks to raise the FDI cap insurance sector to 49 percent from the 26 percent at present.
The Forward Contract Regulation Act (Amendment) Bill will empower commodity markets regulator FMC with greater financial autonomy, facilitate the entry of institutional investors and introduce new products for trading such as options and indices.
The new Companies Bill will be a thorough overhaul of the existing laws while the Competition Act seeks to bring all sectors under its purview, except involuntary mergers in sectors like banking and insurance which are already regulated.
A proposal for operationalising the Infrastructure Development Fund (IDF) for enhanced funding of infrastructure projects was also approved.
In anticipation of big-ticket reforms, the Sensex earlier in the day surged 188 points to breach the 19,000 mark for the first time in nearly 15 months