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Cabinet Clears FDI In Pension, Insurance

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The Cabinet approved bills for foreign investment in insurance and pensions on October 4 in the latest move by Prime Minister Manmohan Singh to restore confidence in the flagging economy.  But the reforms will face a tough fight in parliament with erstwhile ally Trinamool Congress threatening to push a no-confidence motion in Parliament against the UPA government and most major parties opposing the move.

Under the bills cleared by the Cabinet, the cap on foreign money in insurance companies would rise to 49 per cent. Foreign investment in pension and insurance as well as Companies Bill 2011 was cleared by the Union Cabinet on October 4.

The pension and insurance bills have been proposed for nearly a decade. Unlike last month's measures, they need to be approved by parliament, where the coalition government is in a minority after its largest partner pulled out in anger at last month's reforms.

The Cabinet also signed off on a shareholder-friendly bill to make corporate management more accountable, which would overturn a half-century old law.

Union Cabinet met to discuss raising the FDI cap in insurance sector to 49 per cent and opening the pension sector to foreign investment besides creation of a National Investment Board.  The Cabinet also considered a number of other crucial measures like giving more powers to commodity market regulator FMC, Competition Bill to bring all sectors under Companies Act, and model tripartite agreement for operationalising the Infrastructure Development Fund (IDF), sources said.

This is the second time within a month that the cabinet would consider such major proposals to push reform initiative. On the eve of the cabinet meet, RBI said on October 3 that the government must tackle growing subsidy burden to contain fiscal deficit, highlighting the tension among the country's policymakers amidst fears of a downgrade.
Hard To Push Through
Good intentions apart, it is going to be next to impossible for the government to get Parliament to approve the pension and insurance FDI moves. As expected, The Left and Trinamool Congress chief Mamata Banerjee are opposed to FDI in both insurance and pension sectors. Expressing her opposition to the reforms, Mamata Banerjee posted on her Facebook page that in the name of reforms, loot is going on and to suppress it lies are being told.

BJP, on the other hand, had appeared more malleable as BJP spokesperson Prakash Javadekar said "“We have told the government that if you address our concerns then we will back your decisions on pension and insurance,” Javadekar said.

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, in the existing political climate, BJP is unlikely to be malleable and more likely to go with the tide and oppose the move.

Once the amendments to the current guidelines are brought to Parliament, the government will have to depend on the external support of Samajwadi Party's Mulayam Singh Yadav who has 22 Lok Sabha MPs and could help the government pass the Bill. In the Rajya Sabha, however, the government is in a minority, and it could trip there.

Insurance reform is widely seen as crucial because 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.

While pension and insurance decisions were in focus, the Cabinet on October 4 also discussed a range of legislation including the Companies Bill, giving statutory powers to the interim pension regulator and giving the forwards market regulator more power.

The Cabinet was also expected to discuss the final draft of the 12th Five Year Plan and also clear the creation of a National Investment Board to be headed by the Prime Minister for clearing mega projects.

Parekh Panel For Big-ticket Reforms
A high-level committee on financing of infrastructure, headed by HDFC Chairman Deepak Parekh on October 3, meanwhile  suggested big-ticket reforms to attract investment in the infrastructure sector and recommended increasing electricity charges and rail fares.

The Parekh committee also pitched for 100 per cent foreign direct investment (FDI) in the telecom sector. The limit at present is 74 per cent. The panel also suggested raising prices of natural gas.