‘Govt can ask for more FII in insurance’

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SummaryTwo 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.

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 couldn’t be questioned by those who had blinkers on, he suggested the BJP may not go with Mamata Banerjee’s no-confidence motion against FDI in retail—a 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?

We’ll 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 didn’t need Parliament’s 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 you’ll go along with Mamata Banerjee’s no-confidence motion?

We’ll take a decision on how we will tackle this later today. We could go along, for instance, with CPI’s Gurudas Dasgupta’s 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 wants—it can’t keep changing the goalpost. The government can’t give an undertaking in Parliament promising consensus before moving on FDI in retail, and then notify this without a consensus.

We’ll come to that in a minute, but effectively we’re back to where we started. You won’t allow either pension or insurance FDI to be raised to 49%…

Let’s 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 didn’t 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 don’t allow 49% FDI?

The government can come to the Standing Committee with this; it hasn’t so far. That’s 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.

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

Yes.

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

You can’t 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?

I’m not saying that. In the context of higher FDI in insurance, I’m saying big global insurance firms got caught doing what they shouldn’t 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 wasn’t 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 you’ll 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 haven’t even been brought before Parliament, and that includes the Companies Bill, so don’t lay everything at the Opposition’s door—and 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 didn’t 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 he’ll 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 couldn’t be done. But the government is once again talking to the Empowered Committee of state finance ministers… We don’t 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 Committee’s view on retrospective taxation?

The Standing Committee didn’t 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.

That’s 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 it’s 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 isn’t 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.

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