Eyeing BJP support, govt may retain FDI cap in insurance

However, it may stick to its decision to increase FII cap in pension by 23%

In a move to retain peace with BJP, the government might not hike the cap on FDI component from existing 26% in the insurance bill.

However, the Cabinet might approve a proposal to still raise the foreign investment limit in the sector to 49% by adding 23% cap through foreign institutional investors (FIIs).

The Cabinet meeting is slated for today evening to discuss these two key issues. Those in know of the development said that 23% FII limit is being added in the insurance sector to rope in the BJP to support the Insurance Laws (Amendment) bill in Parliament.

Without BJP's support, the bill might not be passed in the Rajya Sabha, where it was introduced for the first time in 2008.

Parliament's standing committee on Finance, headed by senior BJP leader Yashwant Sinha, had earlier recommended keeping FDI cap in the insurance sector at the current 26%.

The government has been trying for a number of years to build a consensus on hiking FDI in the insurance sector to 49%. The proposal mooted by P Chidambaram in his first budget of his earlier stint as the Finance Minister in the UPA 1 regime in 2004, could not be tabled in the form of bill in Parliament, until the Left Front withdrew support from the ruling coalition over issue of the Indo-US civil nuclear deal.

Cap on foreign investment in the pension sector may also be kept at the same level as in the insurance sector--26% for FDI and 23% for FIIs.

The Pension Fund Regulatory and Development Authority (PFRDA) Bill is also expected to be taken up at the Cabinet meeting later today. Besides opening up the sector, the bill also aims at giving statutory  powers to interim pension regulator PFRDA.

Both these pieces of legislation along with a couple of other reform bills like amendments to the Forward Contract Regulation (Amendment) Act and the Companies Bill are expected to be discussed during the meeting.