The long-awaited insurance Bill, which will raise the overseas investment limit in the sector to 49% from 26%, looks set to become law before the year is out with a majority on the parliamentary select committee ready to give its assent.
The Bill’s passage into law ? once cleared by the Upper House and approved by the President ? will bolster the Narendra Modi government’s economic reform credentials. The Chandan Mitra-headed committee has given the green signal to the Insurance Laws (Amendment) Bill, a member told ET, confirming the development. “Mostly, all parties are on board… We do not expect more than four members to submit their dissent,” the committee member said.
Also, there is agreement on this limit being a composite one, which means it doesn’t bar portfolio investors. That would make it more attractive for insurers as it opens up the options when it comes to raising capital or exiting. The government plans to stick to the proposed formulation of capping total foreign investment at 49%, a senior government source said.
Along with the goods & services tax (GST), this is one of the reform measures most closely watched by international investors and, if passed, will be read as an affirmation of the Narendra Modi government’s resolve to speed up economic liberalisation.
Report to be Tabled Tomorrow
The select committee report is likely to be presented in the Rajya Sabha on Wednesday after which the Union government will take a call on whether to present the Bill with amendments or as it is. The government is keen to push the legislation through in the winter session of Parliament, which ends on December 23. Members have been given until Tuesday evening to formally present any dissent notes.
Finance Minister Arun Jaitley said on Monday that he was hopeful insurance market expansion would take place once the Bill was passed by Parliament. In a statement, he expressed his sense of satisfaction over the recommendations made by the parliamentary select committee. The cash-starved insurance sector has been demanding further liberalisation of the foreign investment limit and has pegged capital needs at more than Rs 50,000 crore.
Insurance penetration in the country declined to 3.96% of GDP in 2012-13 from 5.2% of GDP in 2009-10. The insurance industry is hopeful that the government will be able to pass the Bill in the current session of Parliament. “It has been long overdue. The 49% composite increase should help the industry, and the sector stands to gain around Rs 8,000 crore as FDI (foreign direct investment),” said a senior executive at a private life insurer.
Most Indian partners holding a 74% stake in their insurance venture with foreign partners are unable to infuse the funds needed to expand. The Modi government has promised several reforms to get the country’s economy back on to a high-growth trajectory following two years of below-5% growth. The government has already opened up the railways to FDI and raised the overseas investment limit in defence to 49% from 26%.
Jaitley had said in his July budget speech that the insurance sector was investment-starved and several segments of the sector badly need to be expanded. “The composite cap in the insurance sector is proposed to be increased up to 49% from the current level of 26%, with full Indian management and control, through the FIPB (Foreign Investment Promotion Board) route,” Jaitley had said in his budget speech. The government had agreed to send the insurance Bill to the select committee in the last session of Parliament to get Opposition members, especially from Congress, on board, after they voiced some concerns.
The panel had been given a further extension until December 12. According to officials aware of the deliberations of the 15-member committee, those belonging to the Janata Dal (United), Samajwadi Party, CPI(M) and Trinamool Congress are expected to submit their dissent. But Congress is said to be agreeable to the legislation. The insurance Bill has been with the Rajya Sabha since 2008.
In October 2012, the Cabinet had cleared 49% foreign investment in the sector. However, Parliament’s standing committee on finance headed by former finance minister and BJP member Yashwant Sinha had suggested that the cap be kept at 26%.