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Cabinet nod for Bill to raise FDI cap in insurance

Special Correspondent

NEW DELHI: Three months after the UPA coalition broke with the Left parties, the Cabinet approved the introduction of a comprehensive Bill in Parliament seeking to hike the much-awaited foreign direct investment (FDI) cap in the insurance sector from 26 to 49 per cent and also amend various other archaic laws.

Briefing journalists here on Thursday’s decisions, Finance Minister P. Chidambaram said: “The Cabinet gave its approval for introduction of the Insurance (Amendment) Bill, 2008, for amendment to the Insurance Act 1938, the General Insurance Business (Nationalisation) Act, 1972, and the Insurance Regulatory and Development Act, 1999 in the Rajya Sabha on the basis of recommendations made by a GoM [Group of Ministers].”

Alongside, the Cabinet gave its nod for introducing a Bill to increase the paid-up capital of the state-owned Life Insurance Corporation from Rs. 5 crore to Rs. 100 crore to bring it on a par with private insurers and thus provide a level-playing field. “The LIC (Amendment) Bill, 2008 is being tabled ... This is one short Bill that raises equity from Rs. 5 crore to Rs. 100 crore.”

The [LIC] Bill will be tabled in the Lok Sabha on the recommendations made by the GoM, an official statement said on Friday.

While the move to hike the FDI cap on insurance was criticised by the Left parties, which view it as demolition of institutions that helped the country withstand the impact of the ongoing global financial crisis, private sector players hailed the decision to amend the IRDA Act, 1999 as it would enable them to garner capital for business expansion.

Incidentally, it was only after the Left withdrew support to the UPA government on the Indo-U.S. nuclear deal issue did the GoM refer the Bill to the Cabinet.

Flexibility to IRDA

Mr. Chidambaram pointed out that the proposed amendments in Bill would remove redundant provisions in the legislation while incorporating certain provisions to provide IRDA with flexibility to discharge its functions effectively and efficiently. The Bill, however, was unlikely to be passed by the current Lok Sabha, mainly for lack of time, as it would have to be approved by a parliamentary committee.

Parliament, now in recess, is to reconvene on December 10.

It was in the UPA government’s first budget in 2004 that Mr. Chidambaram proposed to raise the FDI cap in the private insurance sector but the relevant Bill could not moved owing to stiff opposition from the Left.

The insurance sector, a monopoly of state-owned insurers earlier, was thrown open to the private sector in 2000 and FDI up to 26 per cent was permitted. Ever since, 36 private companies — 20 in life and 16 in non-life insurance — have started operations in the country.

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