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New Delhi: Economic
reforms in India received a further push Thursday, with the
cabinet approving legislative changes that will allow up to 49
percent foreign equity in pension sector and hike such limit in
insurance to 49 percent from 26 percent.
The cabinet meeting, presided over by Prime Minister Manmohan
Singh, also approved other long-pending measures such as crucial
changes in the Companies Act, and giving greater autonomy to the
regulator to introduce more commodities and options for futures
trading.
Keeping the momentum going on fresh doses of economic
liberalisation measures being administered since last month, the
United Progressive Alliance (UPA) government cleared 21 proposals
Thursday, with the prime minister leaving little room for debate.
The decisions, announced by Finance Minister P. Chidambaram,
included designating five domestic airports for overseas
operations, bringing all the financial services under the
Competition Commission and revamp of employment exchanges.
The cabinet also cleared the draft 12th Five Year Plan document
(2012-13 to 2016-17), which targets an economic growth of 8.2
percent. This will now go to the National Development Council for
adoption. Also cleared was a fund for infrastructure.
Unlike the decisions on retail, aviation and broadcasting, the
approvals on insurance, pension and forward contracts in
commodities need the parliament's approval and could face rough
weather from the opposition, especially the Bharatiya Janata Party
(BJP).
It was not clear Thursday if BJP will support the proposals, since
key leaders said they could consider them if all caveats were met.
But Trinamool Congress of West Bengal Chief Minister Mamata
Banerjee slammed the decisions, especially on insurance and
pension.
The Parliamentary Standing Committee on Finance, headed by BJP's
Yashwant Sinha, had recommended foreign equity in insurance sector
be capped at 26 percent, but was okay with the opening of pension
business with a 26 percent foreign equity cap.
"The foreign equity limit in pension sector will follow the
insurance sector. If in the insurance sector the cap is 49
percent, then in pension too the cap will be 49 percent,"
Chidambaram said.
India's insurance industry is valued at $41 billion with 24
companies in life insurance business and 27 in general insurance
industry. The penetration is rather poor at 4.4 percent of the
population for life and 0.71 for non-life business.
In pension, the regulator has appointed seven fund managers to
seek investments under the new pension scheme. Official data shows
that a mere 12 percent of India's working population has some form
of a retirement benefit.
The decisions on these two sectors is expected to go a long way in
helping the domestic companies shore up their capital base, and
also introduce new products and schemes that suit individual
needs.
"The new instalment of big bang reforms is a clear message the
government is determined to strengthen the economy," said R.V.
Kanoria, president of the Federation of Indian Chambers of
Commerce and Industry (Ficci), reflecting India Inc's mood.
"It has been a long pending step in the right direction to boost
confidence of global insurers and investors. The insurance
industry has been struggling on capital that will be now be
forthcoming," added Shashwat Sharma, Partner with global
consultancy KPMG.
The announcements follow a set of major reform measures last month
like allowing up to 51 percent foreign equity in multi-brand
retailing and up to 49 percent stake to global airlines in
domestic aviation, while bringing parity in broadcast and telecom
sectors.
This apart, the government had also raised the prices of diesel to
help oil-retailing companies bridge losses on account of selling
the fuel below cost and limiting the dole on domestic cooking gas
to six cylinders per annum against unlimited supplies earlier.
In anticipation of Wednesday's move, the sensitive index (Sensex)
of the Bombay Stock Exchange (BSE) had vaulted 188 points, or 1
percent, to 19,058 points, touching a 15-month high. The cabinet
decisions came after the close of markets.
(Arvind
Padmanabhan can be reached on arvind.p@ians.in)
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