Crucial financial sector reforms are again stuck, despite finance minister Pranab Mukherjee’s appealing to political parties to help pass the legislations in this regard.
Parliament’s standing committee on finance on Thursday rejected a clause in the insurance Bill to raise the foreign direct investment (FDI) cap in private insurance from the existing 26 per cent to 49 per cent. The panel also turned down a key clause in the banking Bill, to raise the cap on voting rights of a single shareholder in government-run banks to 10 per cent from the existing one per cent, and in other banks from the existing 10 per cent to a level proportionate to the stake.
“We wanted to retain the existing caps on voting rights in banks,” a member of the committee told Business Standard. The committee also refused to accept the government’s proposal to bring down the minimum paid-up capital in health insurance to Rs 50 crore from the current Rs 100 crore. It recommended retaining the existing norms.
Though the government is not bound to accept the recommendations, it needs crucial numbers of opposition parties to pass these Bills.
Earlier, on the pension reforms bill, the standing committee had declined to accept the government’s desire to keep the FDI component out of the purview of legislation.
The insurance, pension and banking Bills are supposed to unleash financial sector reforms, with this sector expected to be the next driver of Indian economic growth. The change in the insurance law, on FDI cap, was first mooted by then finance minister P Chidambaram in 2004-05, the first year of the UPA government. A Bill to this effect could be tabled in only in 2008, in the Rajya Sabha, when the Left parties withdrew support to the UPA Government over the Indo-US nuclear deal. The Banking Laws (Amendment) Bill was tabled in the Lok Sabha earlier this year.
The Bill also seeks to make it mandatory for any shareholder who acquires five per cent or more stake in a bank to get prior approval from the Reserve Bank of India.
It also seeks to take away the power of scrutinising mergers and acquisitions in the banking sector from the Competition Commission of India.