Column A window of opportunity

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: Following recent political events, there is widespread expectation that key reform measures will now be fast tracked. The finance minister has declared his intention to push through the pending reforms in the financial sector.

In the banking sector, the proposal is limited to the removal of the 10% cap on voting rights of non-government shareholders. This is certainly a desirable step. But it does not address key reforms needed in this sector. The banking industry remains dominated by public sector banks who account for more than 75% share of banking sector assets. The Narasimhan committee of 1998, whose recommendations have formed the blueprint of reforms in this sector, had recommended dilution of government shareholding in these banks to 30% from the current minimum statutory cap of 51%. This is necessary for two reasons. First, to enable them to raise capital from the market to meet their increased capital requirements and, second, to enhance their accountability to the market. The previous government had proposed legislation which could not be enacted. It is necessary to incorporate public sector banks as companies under the Companies Act and repeal the Bank Nationalisation Act. Without these measures, the banking sector reforms will remain incomplete.

The proposed increase in the FDI cap in the insurance sector to 49% will be a good step and should encourage greater foreign participation in this sector and expand insurance coverage and availability of long-term funds for the infrastructure sector.

Similarly, the enactment of the Pension Fund Regulatory and Development Authority Bill will be a good beginning for the opening up of this sector. The scope of this Bill is limited to managing the fund collected from central government employees after shift to contributory pension plan for employees recruited after January 1, 2004. Multiplicity of informal regulators in the form of concerned administrative ministries in sectors like coal, steel, shipping, banking and insurance, EPFO will continue to regulate the pension funds in their respective sectors with large contingent fiscal liabilities and inefficient use of long-term savings.

Apart from the financial sector, there are many other sectors beset with major barriers to growth and efficiency—petroleum, for example.