Govt can ask for more FII in insurance

Written by Shobhana Subramanian | Updated: Nov 20 2012, 18:50pm hrs
Two days ahead of the Parliament opening on Thursday, BJP leader and head of the Standing Committee on Finance, Yashwant Sinha, indicated areas where the government could get critical bills passed, provided, he underscored, the government chose not to be obdurate. While Sinha was critical of statements by commerce minister Anand Sharma saying executive decisions like FDI in retail couldnt be questioned by those who had blinkers on, he suggested the BJP may not go with Mamata Banerjees no-confidence motion against FDI in retaila decision will be taken later today. The Banking Regulation Act, which would allow RBI to start processing new bank licences, he indicated could get passed. Excerpts from an interview with Sunil Jain and Shobhana Subramanian:

Will you allow Parliament to function

Well try our best, but a lot depends on whether the government chooses to be obdurate. Three days before Parliament opens, how can Anand Sharma say executive decisions cannot be questioned by Parliament and how does he expect us to cooperate when he accuses us of having blinkers on

Are executive decisions ratified by Parliament Did you ever allow this when you were in power

Of course they are challenged; how else does Parliament express itself Voting against something expresses dissatisfaction with the government. No-confidence motions are not the only way to do this. In the Lokpal case, Pranab Mukherjee summarised the sense of the House. The nuclear deal didnt need Parliaments approval, but the government sought it.

Have you ever allowed voting on your decisions

Of course we have. We allowed an adjournment motion on UTI even though the government could have fallen on it. When the Congress wanted a motion to condemn the US invasion of Iraq, we put together a resolution and it was passed by Parliament.

So youll go along with Mamata Banerjees no-confidence motion

Well take a decision on how we will tackle this later today. We could go along, for instance, with CPIs Gurudas Dasguptas view of having a discussion under Rule 193 without voting. There is voting under Rule 184; we even have a Rule 185 that allows voting but in a friendly manner, after parties agree on a resolution (like we did on Iraq). I had moved a resolution like this on inflation.

What does depends on how obdurate the government is mean Does it mean the government has to withdraw FDI in retail for Parliament to function

In the case of a JPC on 2G, the entire winter session was lost with the government not agreeing to it, and then they finally conceded it. The government is also not clear on what it wantsit cant keep changing the goalpost. The government cant give an undertaking in Parliament promising consensus before moving on FDI in retail, and then notify this without a consensus.

Well come to that in a minute, but effectively were back to where we started. You wont allow either pension or insurance FDI to be raised to 49%

Lets get some facts right. For one, the Standing Committee is not just the BJP or I; the UPA has more members in it than the Opposition has, so it is incorrect to say the BJP is not allowing the bills to go through. Two, my original insurance bill had 26% FDI and another 23% for FII/Overseas Corporate Bodies (OCBs), etc. It was the same Congress that didnt want anything more than 26%.

Two questions. First, are you open to allowing 23% for FIIs/OCBs, etc Two, how are firms to find the capital to grow if you dont allow 49% FDI

The government can come to the Standing Committee with this; it hasnt so far. Thats when we will decide.

But will you clear it

I cannot answer a hypothetical question from the media. Let the government ask the Standing Committee.

And the funds

We had detailed discussions with the IRDA and no one was able to show us why we needed 49% FDI. The bill, as it stands, commits to Indian promoters diluting to 26% after 10 years, so firms can get funds from the market if they need to. In any case, as far as Indian company law is concerned, there is no difference between 26% and 49% as far as control is concerned. So the only issue is of ability to raise funds, and no one has been able to convince the Standing Committee that increased FDI is the only way out.

Youve said somewhere that after the global financial crisis, everyone is looking at financial sector reforms differently.

Yes.

But shouldnt this apply to, say, complex derivatives that few understand, and not to insurance and pensions where, in any case, if the regulator doesnt do a good job, even 100% Indian firms can get away with fraud.

You cant keep regulating everything and assume all fraud will get caught. We still have banking and stock market frauds despite good regulators in both areas.

So does that mean we ban FIIs to prevent stock market frauds

Im not saying that. In the context of higher FDI in insurance, Im saying big global insurance firms got caught doing what they shouldnt have been doing. So we need to be a bit cautious. There is a time for everything, a political environment. I spoke of labour market reforms in 2001, but nothing happened since the time wasnt right.

Will we able to get other bills through, the Banking Regulation Act for instance

It can go through if the government agrees to a voting cap of 26% irrespective of the level of shareholding.

So youll allow this bill through, which will allow RBI to start processing bank licence applications

There are 12 pieces of legislation that the Standing Committee on Finance has given its view on, and 11 of these havent even been brought before Parliament, and that includes the Companies Bill, so dont lay everything at the Oppositions doorand may I reiterate the Standing Committee has more UPA members than Opposition ones.

You say the government is changing the goalposts. What does that mean

The DTC is a good example. The Standing Committee made a lot of suggestions on GAAR, but Pranab didnt wait to even consider these and just went ahead. Now, his successor has asked Dr Parthasarathi Shome to give a report on this, and we read hell send a note to the PM on this in 10 days. Where does the Standing Committee come in on this

In the case of the Companies Bill, we gave our suggestions but the government then said it had done another set of consultations and changed the bill, but no one came to the Standing Committee. In the case of the GST, we discussed the Constitutional Amendment and I wanted to give our report by July 27. Due to the turmoil in the finance ministry, this couldnt be done. But the government is once again talking to the Empowered Committee of state finance ministers We dont know whether we should look at the Constitutional Amendment or whether some new thing has to be looked at. In the Land Acquisition Bill, the Standing Committee looked at one thing, and now the government is proposing something else after Sonia Gandhi wanted a different formula for the number of people who need to agree before land is acquired.

What has been the Standing Committees view on retrospective taxation

The Standing Committee didnt take a view on this, but under the Constitution, the government has the power to do this. What I have said is that while Parliament has the right to do retrospective amendments, the government must take several things into account like the impact of such law.

Thats why you never plugged the Mauritius loophole, since we need FII

Well, a lot of people made personal allegations against me at that time, but its been 11 years since and no change has been brought in.

As a former finance minister, do you think RBI is being obdurate in not cutting rates

Interest rates are a function of inflation and cannot be cut till inflation falls. You talk of supply-side issues, on agriculture especially, that are causing the problem, but why isnt the government addressing this It has 68 million tonnes of foodgrains that could easily be released to curb food inflation. In 2002, we lost 40 million tonnes of production, but still had low inflation because we released so much foodgrain and killed food inflation.