UPA suspends FDI hike in insurance - Livemint.com
New Delhi: In a face-saving move, the cabinet on Thursday avoided a decision on the politically sensitive move to increase the limit on foreign direct investment (FDI) in insurance joint ventures to 49% from the prevailing 26%.
Instead, the government decided to approach the opposition afresh with a request to reconsider the parliamentary standing committee's recommendation that FDI in insurance be capped at 26%.
The cabinet cleared the Micro Finance Institutions (Development and Regulation) Bill that seeks to keep microlenders outside the purview of state-level legislation, including the controversial October 2010 Andhra Pradesh law that threw the industry into a crisis. If the Bill gets legislative nod, it will serve as a lifeline for microfinance institutions (MFIs), particularly those located in Andhra Pradesh.
"The government felt that there is a need to evolve political consensus to increase the FDI to 49% and keeping the cap at 26% is pointless," according to a minister who attended the meeting and spoke on condition of anonymity.
Foreign firms with joint ventures in India have been waiting for an increase in the FDI cap. Till now, promoters of life insurance firms have invested around $10 billion (Rs 53,300 crore today), according to industry estimates.
The parliamentary standing committee on finance, headed by Bharatiya Janata Party leader Yashwant Sinha, had opposed increasing the FDI ceiling to 49% from 26% in the Insurance Laws (Amendment) Bill, 2008. It argued that such a move would expose India to the "vulnerabilities of the global market" as an international crisis could lead to flight of capital and endangers the interests of policyholders. It instead suggested tapping alternative routes of raising capital, such as tapping domestic financial markets.
Faced with criticism over the government's inability to push through reforms, finance minister Pranab Mukherjee in his budget speech had said the government will push the insurance and pension reform legislations and the banking laws amendment Bill in the ongoing budget session.
The revised version of the Insurance Laws (Amendment) Bill, 2008, would allow state-owned general insurance companies to raise funds from the market and facilitate the entry of Lloyd's into India by allowing foreign reinsurers to set up branches under the supervision of the Insurance Regulatory and Development Authority. It also proposes to set the minimum capital requirements for life and general insurance companies at Rs 100 crore and for health insurance companies at Rs 50 crore.
The insurance industry, especially the life segment, has been under pressure as large-scale regulatory changes prompted a rethink in product and distribution structures, and affected new business premium collections. In 2011-12, the new business premium of the life insurance industry contracted by 9%.
The much awaited microfinance Bill will give more powers to the Reserve Bank of India (RBI) to regulate all microlenders, including the smaller MFIs. The MFI Bill also proposes to set up a Microfinance Development Council. Industry officials said it will clear the uncertainty surrounding the sector and bring back the confidence of investors.
"To some extent, the confidence has started rebuilding after RBI came out with its regulations for the sector. The Bill will take the process forward," said Samit Ghosh, chief executive and managing director of Ujjivan Financial Services Pvt. Ltd. "But by the time the Bill becomes a law, a lot of time would have passed and it may be late for borrowers in Andhra Pradesh who have defaulted and want to repay."
Andhra Pradesh passed a law in October 2010 restricting the operations of microlenders after allegedly coercive loan recovery practices led some overextended borrrowers to commit suicide. The law led to a drastic increase in bad loans at MFIs as borrowers stopped repaying debt. Banks in turn stopped lending to MFIs.
The cabinet on Thursday did not clear a proposal to set up a coal regulator. A person present in the cabinet meeting, who did not want to be identified, said the proposal had been referred back to a group of ministers looking at the issue, after the power ministry objected to certain provisions.
According to another cabinet member who attended the meeting, the proposal was also opposed by three other ministers. One of the ministers objected to the proposal on the grounds that setting up a coal regulator will indicate that India was moving towards a regulatory-heavy regime. The labour ministry did not want to give up the right to decide on labour issues to a regulator. The environment ministry also objected to the proposal.
The cabinet also approved the National Accreditation Regulatory Authority for Higher Educational Institutions Bill. The proposed legislation seeks to make accreditation mandatory for all higher educational institutes except those engaged in agricultural education. The accreditation by an independent accreditation agency, the government believes, can foster academic quality.
The cabinet approved an amendment to the Protection of Women against Sexual Harassment at Workplace Bill, 2010, to include domestic help in the ambit of the legislation. The move is expected to benefit about 4.75 million women registered as domestic workers in the country. Under the legislation, the burden of the proof in such cases will be on the accused, a person familiar with the development said.
remya.n@livemint.com
Aman Malik contributed to this story.
11 May, 2012
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Source: http://www.livemint.com/2012/05/10234110/UPA-suspends-FDI-hike-in-insur.html
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