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UPA-II gambles with another round of big bang reforms

Sujay Mehdudia
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FDI cap in insurance up to 49%; pension sector opened up

Notwithstanding the strong opposition to its reforms agenda, the Manmohan Singh government on Thursday pressed ahead with more big-ticket economic initiatives, raising the foreign direct investment cap in the insurance sector to 49 per cent, opening up the pension sector to foreign investment and clearing the Companies Bill, 2011. It also approved amendments to the Competition Act, 2002, and the Foreign Contracts (Regulation) Amendment Bill, 2010.

In deciding to move ahead, the government seems to have taken something of a political gamble: unlike its earlier decision to allow FDI in retail, opening insurance and pensions needs parliamentary approval. The Pension Fund Regulatory and Development Authority Bill, 2011, and the Insurance Laws (Amendment) Bill, 2008, have been kept pending in the Rajya Sabha all this while despite immense pressure from Western lobbies and governments because the UPA lacked the numbers to push them through. If they are to get passed now, the Congress will have to do more than woo the Bahujan Samaj Party and the Samajwadi Party: it will need the backing of the opposition BJP too.

To give a push to the infrastructure sector, the Cabinet cleared a tripartite agreement for the Infrastructure Debt Fund (IDF), the 12{+t}{+h}Five Year Plan document and granted the international airport status to the Lucknow, Varanasi, Tiruchi, Mangalore and Coimbatore airports.

The tripartite agreement is among the developer, the lender (bank) and the IDF. Loans will be refinanced by the IDF so that banks could have free funds for more lending.

The Cabinet, at a meeting presided over by Prime Minister Manmohan Singh, decided to raise the cap on FDI in insurance from 26 to 49 per cent. The sector needed $12-billion worth of investments, which could come only if the FDI limit was raised.

The Cabinet also approved certain amendments to the Pension Fund Regulatory and Development Authority Bill. “These amendments have been necessitated in view of the recommendations of the Standing Committee on Finance, which has examined the Bill. The government has decided to accept five key recommendations,” an official release said.

Though the cap on FDI in the pension sector has not been announced, Finance Minister P. Chidambaram said it would be of the same order of 49 per cent as in the insurance sector.

The Cabinet approved the Forward Contract Regulation Act (Amendment) Bill, which seeks to give more powers to the Forward Markets Commission (FMC), the commodity markets regulator. The Cabinet gave the green signal for further amending the Competition Act, 2002, so as to meet the present-day needs in competition, in the light of the experience gained from the working of the Competition Commission of India in the past few years.

The Companies Bill, 2011, is meant to ensure the growth and regulation of the corporate sector.

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