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Parliament panel rejects higher FDI in insurance
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NEW
DELHI: A key parliamentary panel has dealt a series of
setbacks to the government's attempts to revive faltering economic reforms,
saying it sees no merit in a proposal to allow 49% foreign investment in insurance companies while comprehensively
rejecting a legislation intended to provide legal backing to the National
Identification Authority of India, or NIAI.
Two reports - one on insurance and the other on NIAI - by Parliament's standing committee on finance headed by Yashwant Sinha, former finance minister and senior BJP leader, will come as a further blow to the government, which on Wednesday suspended adecision to open up Indian supermarkets to foreign investors under pressure from dissenting allies and the Opposition.
The contents of the reports, which are with the Speaker of the Lok Sabha and have not been formally presented to Parliament, were described to ET by a member of the committee on the condition of anonymity.
The only saving grace for the government was a third report that accepted, though partially, a government proposal to increase the voting rights of private investors in banks. The government version of the legislation, known as the Banking Laws (Amendment) Bill, had proposed scrapping a 10% cap on voting rights for investors in private sector banks and making it proportionate to the shareholding.
The standing committee rejected this version, proposing instead to cap shareholding at 26%. The current cap for investors in public sector banks is 1%.
Reports of standing committees are not binding on the cabinet, but in absence of a parliamentary majority, the Congress-led government will find it virtually impossible to get the insurance or NIAI legislation through Parliament in their original form.
Two reports - one on insurance and the other on NIAI - by Parliament's standing committee on finance headed by Yashwant Sinha, former finance minister and senior BJP leader, will come as a further blow to the government, which on Wednesday suspended adecision to open up Indian supermarkets to foreign investors under pressure from dissenting allies and the Opposition.
The contents of the reports, which are with the Speaker of the Lok Sabha and have not been formally presented to Parliament, were described to ET by a member of the committee on the condition of anonymity.
The only saving grace for the government was a third report that accepted, though partially, a government proposal to increase the voting rights of private investors in banks. The government version of the legislation, known as the Banking Laws (Amendment) Bill, had proposed scrapping a 10% cap on voting rights for investors in private sector banks and making it proportionate to the shareholding.
The standing committee rejected this version, proposing instead to cap shareholding at 26%. The current cap for investors in public sector banks is 1%.
Reports of standing committees are not binding on the cabinet, but in absence of a parliamentary majority, the Congress-led government will find it virtually impossible to get the insurance or NIAI legislation through Parliament in their original form.
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The rebuff to the government's attempt to reform the
insurance sector was emphatic. The government's version of the bill had sought
to raise the foreign direct investment limit to 49%, but the standing committee
rejected this, insisting that it be maintained at 26%, the limit set in 2002
when the insurance sector was opened to foreign and Indian private investment.
The report also asked the government to be on the guard against attempts to indirectly breach the 26% limit and not to allow foreign insurers to set up business in tax-free enclaves known as special economic zones, according to people familiar with its content.
SCATHING RESPONSE TO NIAI BILL
The standing committee's verdict will disappoint many foreign insurers that are looking to raise stakes in existing ventures to 49%. The promise to raise the FDI limit to 49% has become something of a symbol of India's commitment to economic reforms and its apparent jettisoning will increase the perception taking hold among foreign investors that reforms are at a complete standstill.
The report on the government's draft legislation establishing the National Identification Authority of India was particularly scathing, describing it as "directionless" and asking the government to go back to the drawing board.
The NIAI Bill faced all-round criticism at the meeting of the panel on Thursday, according to people familiar with the proceedings. The panel was near-unanimous that the bill was unacceptable in its present form because of lack of clarity on what the authority proposed to do.
The report also asked the government to be on the guard against attempts to indirectly breach the 26% limit and not to allow foreign insurers to set up business in tax-free enclaves known as special economic zones, according to people familiar with its content.
SCATHING RESPONSE TO NIAI BILL
The standing committee's verdict will disappoint many foreign insurers that are looking to raise stakes in existing ventures to 49%. The promise to raise the FDI limit to 49% has become something of a symbol of India's commitment to economic reforms and its apparent jettisoning will increase the perception taking hold among foreign investors that reforms are at a complete standstill.
The report on the government's draft legislation establishing the National Identification Authority of India was particularly scathing, describing it as "directionless" and asking the government to go back to the drawing board.
The NIAI Bill faced all-round criticism at the meeting of the panel on Thursday, according to people familiar with the proceedings. The panel was near-unanimous that the bill was unacceptable in its present form because of lack of clarity on what the authority proposed to do.
After
FDI in retail, another jolt for govt in FDI in insurance
December 09, 2011 08:15 AM
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Moneylife Digital Team
December 09, 2011 08:15 AM
| Moneylife Digital Team
The Standing Committee on Finance,
which adopted its report on Insurance Laws (Amendment) Bill, 2008, on Thursday
said keeping in mind the present global scenario, any hike in foreign equity
would not be in the interest of Indian companies
New Delhi: After the setback on foreign direct investment
(FDI) in retail, the government was in for another jolt as a Parliamentary
Committee has rejected its proposal for raising the foreign investment cap in
insurance sector from 26% to 49%, reports PTI.
Apart from various aspects of the insurance bill, the
Standing Committee on Finance also asked the government to bring an integrated
modern banking law for India, instead of bringing piecemeal amendments.
The Committee, which adopted its report on Insurance Laws
(Amendment) Bill, 2008, on Thursday said keeping in mind the present global
scenario, any hike in foreign equity would not be in the interest of Indian
companies.
It also recalled that Parliament was assured that the
present cap of 26% will not be breached in future.
The Committee also recommended that the present statement of
objectives of the Bill should be redrafted as it gives a ‘misleading’ impression
that the issue of foreign participation in Indian insurance companies was
decided upon the recommendations of an expert committee, which is not a fact.
It also said that in health insurance business, a company
with a minimum Rs100 crore capital should only be allowed to set up shop and
hence the present requirement of Rs50 crore should be accordingly increased.
On the issue of foreign insurance companies planning
business in special economic zones, the Committee has recommended that no
unregistered foreign entity should be allowed to operate in areas governed by
SEZ Act, 2005.
On the Banking Laws (Amendment) Bill, 2011, the Committee
said that to encourage “corporate democracy”, voting rights in private banks
respect to the proportion of holding should be increased from 10% to 26%.
The Bill proposes to remove the voting right restriction of
10% for private sector banks in the total voting rights of all the shareholders
of the banking company.
In the case of private sector banks, the voting rights would
be commensurate with investors’ shareholding.
The Bill seeks to amend the Banking Regulation Act, 1949,
the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970, and
the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, and
to make consequential amendments in certain other enactments.
According to the bill, the amendments would enhance the
regulatory powers of the Reserve Bank of India and increase the access of the
nationalised banks to the capital market to raise funds required for expansion
of the banking business.
Parliament panel says no to
raising FDI cap in insurance
The
parliamentary standing committee on finance has struck down the suggestion to
increase the cap on FDI
in insurance from 26 per cent to 49 per cent, dealing another blow to the UPA
government's reform agenda.
The
panel, headed by former finance minister Yashwant Sinha, has also opposed an
amendment to banking laws which entails raising the ceiling on voting rights of
shareholders of nationalised banks from the present 1 per cent to 10 per cent.
A
meeting of the panel adopted the reports on the insurance laws (amendment)
Bill, 2008 and the banking laws (amendment) Bill, 2011 on Thursday. The CPM has
given a dissent note on both the reports. Sources indicated that even the
Congress members in the panel were opposed to the big ticket reforms of the
Centre in insurance and banking sectors. The reports are likely to be tabled in
the House
next week.
The
insurance Bill was designed to allow foreign investors to hold up to 49 per
cent of the capital in an Indian insurance company. The standing committee has
recommended that the present 26 per cent cap on FDI in insurance should be
continued. The committee cited recent issues in the world economy, particularly
in the insurance sector, to oppose the government's suggestion.
The
panel, however, has allowed foreign insurance companies to operate from special
economic zones (SEZs). Such companies will have to abide by the Insurance
Regulatory and Development Authority's (IRDA) regulations for running insurance
business just as the foreign banks active in the SEZs follow RBI guidelines.
The
CPM moved an amendment to this suggestion. It argued that allowing insurance
companies to operate from SEZs could set up a bad example.
The
report agreed with the Bill's provision that companies or co-operative
societies in the life or general insurance sector must have a minimum equity
capital of Rs.100 crore, while those in health insurance must have a minimum
equity capital of Rs.50 crore. The committee is learnt to have recommended that
insurance companies should be encouraged to focus on health insurance sector.
The
panel has also struck down the proposal to remove the existing restrictions on
voting rights limited to 10 per cent of the total voting rights of all the
shareholders of a banking company, as provided by the banking laws (amendment)
Bill.
The
committee said the right of the public in controlling public sector banks
should remain paramount. The House panel criticised the Centre for proposing
frequent amendments to banking laws. It is learnt to have suggested to the
government to bring comprehensive and integrated amendments to banking laws
instead of bringing piecemeal legislations from time to time.
Both
the Bills, initiated by the NDA government, were put on the backburner during
UPA's first term as the Left parties were opposed to it. The government tabled
the legislations after the Left withdrew its support to UPA-I. During UPA-II,
finance minister Pranab Mukherjee tried to push these legislations. But this
time, the standing committee has cautioned the government to be more
constructive while amending banking and insurance legislations.
Business Standard
Govt overruled on key changes in banking, insurance Bills
Crucial financial sector reforms are
again stuck, despite finance minister Pranab Mukherjee’s appealing to political
parties to help pass the legislations in this regard.
Parliament’s standing committee on
finance on Thursday rejected a clause in the insurance Bill to raise the
foreign direct investment (FDI) cap in private insurance from the existing 26
per cent to 49 per cent. The panel also turned down a key clause in the banking
Bill, to raise the cap on voting rights of a single shareholder in government-run
banks to 10 per cent from the existing one per cent, and in other banks from
the existing 10 per cent to a level proportionate to the stake.
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“We wanted to retain the existing
caps on voting rights in banks,” a member of the committee told Business
Standard. The committee also refused to accept the government’s proposal to
bring down the minimum paid-up capital in health insurance to Rs 50 crore from
the current Rs 100 crore. It recommended retaining the existing norms.
Though the government is not bound
to accept the recommendations, it needs crucial numbers of opposition parties
to pass these Bills.
Earlier, on the pension reforms
bill, the standing committee had declined to accept the government’s desire to
keep the FDI component out of the purview of legislation.
The insurance, pension and banking
Bills are supposed to unleash financial sector reforms, with this sector
expected to be the next driver of Indian economic growth. The change in the
insurance law, on FDI cap, was first mooted by then finance minister P Chidambaram
in 2004-05, the first year of the UPA government. A Bill to this effect could
be tabled in only in 2008, in the Rajya Sabha, when the Left parties withdrew
support to the UPA Government over the Indo-US nuclear deal. The Banking Laws
(Amendment) Bill was tabled in the Lok Sabha earlier this year.
The Bill also seeks to make it
mandatory for any shareholder who acquires five per cent or more stake in a
bank to get prior approval from the Reserve Bank of India.
It also seeks to take away the power
of scrutinising mergers and acquisitions in the banking sector from the
Competition Commission of India.
House finance panel firms up views on 3 crucial Bills
New
Delhi, Dec. 8:
The Parliamentary Standing Committee on Finance is
understood to be opposed to a hike in foreign direct investment (FDI) cap in
insurance sector.
The insurance laws amendment Bill 2008 had proposed hike in
FDI limit in insurance companies to 49 per cent from the current level of 26
per cent.
Any move by the Parliamentary Panel to recommend against
hike in FDI limit in insurance could come as a setback for private insurers in
the country, sources close to the developments said. The insurance sector was
thrown open to the private sector in 2000.
The Parliamentary Standing Committee on Finance headed by Mr
Yashwant Sinha met here today and firmed up views on three Bills — Insurance
laws amendment Bill 2008, Banking laws amendment Bill and the National
Identification Authority of India Bill 2010.
Plans are afoot to recommend several changes to the proposed
legal framework governing the functioning of Unique Identification Authority of
India (UIDAI). The Parliamentary Panel is not satisfied with the National
Identification Authority of India Bill and will recommend changes, sources
said.
At the end of today's meeting, two members of the panel — Mr
Rashid Alvi of Congress and Mr S.S. Ahluwalia of BJP got into a verbal duel
outside the meeting room over the legislation governing UIDAI, requiring the
intervention of the Chairman.
Indian Express
House
panel shoots down move to up FDI limit in insurance
After
the setback on FDI in retail, the government is in for another jolt as a
parliamentary committee has rejected its proposal for raising the foreign
investment cap in insurance sector from 26 per cent to 49 per cent. Apart from various aspects of the Insurance Bill, the Standing Committee on Finance — chaired by senior BJP leader Yashwant Sinha, also asked the government to bring an integrated modern banking law, instead of bringing piecemeal amendments.
The Committee, which adopted its report on Insurance Laws (Amendment) Bill, 2008, today said keeping in mind the present global scenario, any hike in foreign equity would not be in the interest of Indian companies.
It also recalled that Parliament was assured that the present cap of 26 per cent will not be breached in future. The Committee also recommended that the present statement of objectives of the Bill should be redrafted as it gives a “misleading” impression that the issue of foreign participation in Indian insurance companies was decided upon the recommendations of an expert committee, which is not a fact.
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