Decks cleared for Insurance bill, if Parliament is not disrupted

Congress and BJP agree on raising FDI cap to 49%

With the Congress and the Bharatiya Janata Party (BJP) on the same page in the Rajya Sabha’s select committee on changes in India’s insurance laws, prospects of  the Insurance Laws (Amendment) Bill being tabled in Parliament have turned brighter.

Currently, the select committee is considering the Bill. It is understood to have favoured raising the existing 26 per cent cap on foreign direct investment (FDI) in the sector to 49 per cent (including for portfolio investors).

The fear of ‘hot money’ or funds by foreign institutional investors taking over the sensitive insurance sector had first been voiced by the BJP (under the leadership of former finance minister Yashwant Sinha, the party had opposed raising the FDI caps altogether). Subsequently, the Congress had also voiced concern.

In August, Anand Sharma, Congress MP in the Rajya Sabha, had said, “FDI means it’s tangible investment, solid investment coming into a particular sector for business purposes and when there is a sectoral cap, the issue of ownership and control comes in, which means even if you go up to 49 per cent, the ownership and control is very clearly defined. Earlier, there were two definitions. Now, too, one is for companies, and the other is under FDI so that there is clarity on what we mean by Indian ownership and control. The change that has happened is the BJP has proposed portfolio investment as part of FDI. This is a sensitive sector.”

The Congress’s stance had given rise to the impression that the party sought more clarity on FII investment in the insurance sector. However, now, it is felt it has acceded to a composite cap. As such, the select committee, which has time till December 12 to table its report, will meet on Monday to finalise the report.

The Left, the Janata Dal (United) and the Trinamool Congress are likely to table dissent notes on the report.

INSURANCE LIBERALISATION IN INDIA

• In 1993, the govt set up a panel under former RBI governor RN Malhotra to propose reforms for the insurance sector
• In 1994, the panel recommended private companies, as well as foreign firms (by floating Indian companies) be allowed into the sector
• In 1999, Irda was constituted as an autonomous body to regulate the sector. It was incorporated as a statutory body in 2000
• Irda opened the market in August 2000, inviting applications for registrations; foreign firms were allowed ownership of up to 26%
• In December 2000, subsidiaries of GIC were restructured as independent firms; GIC was converted into a national re-insurer
• In 2002, Parliament passed a Bill de-linking 4 subsidiaries
• In 2008, UPA govt introduced the Insurance Laws (Amendment) Bill, proposing the cap on foreign investment in insurance firms be raised to 49%
• Standing committee on finance rejected this, citing the global economic crisis and the sensitive and long-term nature of the sector
• In 2013, 86 amendments were incorporated and the Bill was reintroduced; the Bill sought to retain the proposed FDI cap of 49 per cent; the contention was whether there should be a separate cap for FIIs
• In its current form, the select committee does not argue for a separate cap for FIIs

The select committee, headed by BJP MP Chandan Mitra, will seek to convince members of the need to raise the FDI cap, saying this would help the sector meet its growing financial needs.

Despite demands by the Left that ‘Indian-owned’ and ‘Indian-controlled’, be defined afresh, the committee is believed not to have accepted such a step, as it found no need to redefine Indian ownership for 49 per cent. Other crucial recommendations of the committee include accepting the unanimous view of all members to raise the minimum capital requirement for health insurance companies from Rs 50 crore to Rs 100 crore.

The panel is also in favour of the entry of multinational insurance brokers into the insurance sector. It has left it to the Insurance Regulatory and Development Authority to frame regulations in this regard. The committee’s report could see minor alterations before it is tabled in Parliament, as members might insist on changes.    

Though the government can take comfort from the fact that the select committee will clear its draft report without glitches, as well as the prospect that it could even be tabled in Parliament, whether or not it succeeds in getting the Bill passed in the Upper House remains to be seen, given the current stalemate. Congress sources admit through they aren't opposed to the insurance Bill, it is not their priority in this session. "Right now, the government should be more worried about the logjam in Parliament than anything," said a senior Congress leader.