The Cabinet on Thursday deferred a decision on two important Bills — on insurance and a coal regulator — even as it cleared a Bill to make the Reserve Bank the regulator of all microfinance companies. The insurance Bill is one of the main pieces of legislation for financial sector reform.
The Cabinet postponed the Insurance Laws (Amendment) Bill, which had been diluted from an earlier version that proposed to raise the foreign direct investment (FDI) cap to 49 per cent from the existing 26 per cent in private insurance companies.
The Bill was expected to retain the cap at 26 per cent as recommended by Parliament’s standing committee on finance.
The Cabinet referred the Coal Regulatory Authority Bill to a Group of Ministers (GoM).
“Consideration of the insurance Bill has been postponed. Twenty six per cent FDI in insurance is already permitted. What’s the hurry?” Finance Minister Pranab Mukherjee said to reporters after the Cabinet meeting. One of the ministers in the meeting said the Bill was withdrawn for the time being, but did not specify any reasons.
There was some confusion over the Cabinet decision as Information & Broadcasting Minister Ambika Soni said after the meeting that the insurance Bill was cleared. However, Principal Secretary to the Prime Minister, Pulok Chatterji, cleared the air, saying it had been deferred.
The insurance Bill, if not approved by the Cabinet before the Lok Sabha concludes its present session later this month, will dash hopes of three financial sector reforms Bills — on banking, pension and insurance — coming up in this session.
The Cabinet has already cleared a diluted version of the Banking Laws (Amendment) Bill, but the pension Bill is still awaiting its nod. The insurance sector was opened for private players and up to 26 per cent FDI was allowed in private sector companies in 2000. Today, there are 21 private players in the general insurance space and 23 in the life insurance segment. To attract foreign investment, the government and insurance companies wanted the FDI cap to be more than 26 per cent.
A proposal to raise the cap on FDI in private insurance companies to 49 per cent was mooted by the then Finance Minister P Chidambaram in the first Budget of the UPA government in 2004-05. However, the government could move ahead with it in Parliament only after the Left parties, which were opposing the Bill, withdrew support to the government on the Indo-US nuclear deal in late 2008.
According to the Micro Finance Institutions (Development and Regulation) Bill, the RBI will regulate the microfinance activities of approved entities just the way it regulates non-banking finance companies (NBFCs) and banking activities. The Bill, when enacted, is expected to override state legislations to control microfinance institutions. Microfinance institutions (MFIs) have been eagerly waiting for the Bill to provide definitional and regulatory clarity. The earlier Bill of 2007, which lapsed with the dissolution of the 14th Lok Sabha, had sought to regulate only MFIs not regulated by any law.
Consequently, banks and a few categories of NBFCs were kept outside the Bill's purview.
A Bill on a coal regulator was expected to give pricing power to the proposed regulator in the sector. That may deprive state-owned Coal India the freedom it enjoys in fixing and revising prices of its output.
Meanwhile, the Cabinet Committee on Economic Affairs approved a proposal to implement a centrally sponsored maternity benefit scheme in the Chhatrapati Sahuji Maharaj Nagar district carved out of two tehsils of Rai Bareli district and three tehsils of Sultanpur district in Uttar Pradesh. UPA Chairperson Sonia Gandhi represents the Rai Bareli constituency in the Lok Sabha.
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Former chief minister Jagadish Shettar, MP Prahlad Joshi and Hubli-Dharwad West MLA Arvind Bellad had also sought an inquiry