Insurance Bill holds key to trade talks

Allowing more FDI in insurance sector has been one of the foremost demands of EU under free trade talks that started in 2007

The coming monsoon session of Parliament seems to be holding the key to finally have a trade deal signed between India and the 28-nation European Union (EU). This is because of widespread expectation that during this session, Parliament might take up the Insurance Laws (Amendment) Bill 2008, that seeks to raise the foreign direct investment (FDI) cap in the sector from 26 per cent to 49 per cent.

Allowing more FDI in the sector has been one of the foremost demands of the EU under the free trade talks that started in 2007, as it wants India to open up its banking and insurance sectors. But India, on the other hand, had been sceptical about this.

This is also the main reason why the scheduled meeting between commerce and industry minister Anand Sharma and EU trade commissioner Karel de Gucht, supposed to take place in June to close the talks, have not yet happened, a senior commerce department official told Business Standard. The ministers earliest met in April and it was decided that they would next meet in June.

Dates for the monsoon session not yet been announced. Interestingly, even if Parliament gives nod to increase the FDI limit to 49 per cent, "it does not mean that it gets automatically committed to the EU. We will take a view at that time whether we will commit all of it or partially," said the official, who declined to be named.

For example, if a certain European company wants to invest in India's insurance sector within the 49 per cent cap, the government will protect only that much amount under the agreement on which the deal will be agreed upon.

"After Parliament accepts 49 per cent, it will be on (the) commerce (department) to decide whether we would like to commit whole of it. We have to now find a balance. We will not give them what they want if we are not able to get what we want," the official added. Germany, the largest national economy in Europe, is demanding liberalisation of the banking and insurance sector. The issue was strongly put forward by Chancellor Angela Merkel during Prime Minister Manmohan Singh's visit to Berlin in April.

It is learnt that recently, commerce secretary S R Rao visited Brussels, where discussions concerning the main problems areas of the FTA talks were discussed. In May, the meeting between chief negotiators from both sides also remained inconclusive.

The decision to allow 49 per cent FDI in the insurance sector was approved by the Cabinet in October last year. However, this can be implemented only when Parliament gives a green signal. Once concluded, the proposed trade deal would cover 95 per cent of tariff lines and encompass a market of 1.7 billion people.