Having secured Parliament’s approval for foreign direct investment (FDI) in multi-brand retail, the government is considering tweaking the planned amendments to insurance laws to win over opposition parties’ support for reforms in this key sector.
As per a fresh plan prepared by the finance ministry, the government plans to propose keeping the FDI cap in the insurance sector at 26% and allowing another 23% as foreign institutional investment (FII). Key members of the standing committee on finance from the Opposition have indicated their willingness to consider this proposal, which could also speed up listing of insurance companies on the exchanges.
This compromise formula is being prepared as the UPA government is bound to face stiff opposition to an earlier plan to raise the FDI cap insurance to 49% from 26%. The standing committee on finance had opposed any increase in FDI limits in the insurance sector.
Sources said the new proposal has the approval of finance minister P Chidambaram, and the government is trying to securing opposition parties' concurrence on it.
Bhartruhari Mahtab, Biju Janata Dal MP and a member of the standing committee on finance, told FE on Sunday: “We have given our report to maintain the FDI cap at 26% in the insurance sector, and not raise it to 49%.” When asked about the new proposal being prepared by the government, he said: “Let the suggestion come to us (the standing committee), then we will take a call. Personally, I think it will be premature to react right now."
FE could not reach senior BJP leader Yashwant Sinha – chairman of the committee – on Sunday. But in an interview to FE last month, Sinha had said that the government could bring the new proposal – 26% FDI and 23% FII and overseas corporate bodies – to the committee for its views.
Mahtab said that before bringing in the 26% FDI plus 23% FII proposal, the government will have to withdraw the changes being proposed to the existing Bill and the new proposals will have to be routed through Parliament afresh.
Finance ministry sources said permission to portfolio investment in the insurance sector could be pushed through executive orders. None of the insurance companies are listed on stock exchanges in India now. The Securities and Exchange Board of India recently unveiled norms for initial public offerings by insurance companies.
“The government can come to the standing committee with this; it hasn’t so far. That’s when we will decide,” Sinha had said.