The bill proposes to open the insurance sector for both life and general insurance. It recommends that 26 per cent be offered to foreign investors in new joint ventures, and the remaining be held by Indian promoters.

Simulatneously, the Life Insurance Corporation (LIC) Act and General Insurance Act will be suitably amended to end the monopoly of the state-owned companies on writing insurance businesses in the country.

In Wednesday's meeting, finance minister Yashwant Sinha briefed the Cabinet on the fragile fiscal situation, underlining the need for tough measures. The minister also emphasised the urgency of reducing the food and fertiliser subsidy to rectify the situation. The Cabinet was also informed about the need of increasing prices of LPG and kerosene in tandem with a rise in diesel prices though not in the same proportion.

Sinha stressed that hard decisions were necessary to overcome expenditure overrun on account of outgo towards Kargil and general elections. The minister also sought the cooperation of his Cabinet coleagues in expediting disinvestment to achieve the budget target of Rs 10,000 crore.

He is reported to have assured the Cabinet that additional taxation would be imposed as a last resort. His endeavour would be stick to the budget figures by imposing fiscal prudence on all fronts. The minister further said that all efforts would be made to reduce non-plan expenditure by 10 per cent, and added that financial advisers in all ministries have been asked to keep a strict vigil on expenditure.

As far as the insurance bill was concerned, the Cabinet agreed to almost all the suggestions of the Standing Committee on Finance (SFC). It was decided that foreign companies would be allowed to invest up to 26 per cent euqity in the joint venture insurance companies, which shall include 14 per cent form Non-Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs).

The bill is likely to be tabled in parliament in the winter session. The final decision, however, will be taken by the business advisory committee.

Freeing of insurance is the culmination of the process started in early 1990s with the appointment of the RN Malhotra Committee to look into the reforms of this sector.

Earlier, former finance minister P Chidamabram tried to get the IRA bill approved by the Lok Sabha but he had to abort the move because the coalition government failed to garner requisite numbers in the Lower House.

The bill, which had a chequered history, will finally see the light of the day with the new Governemnt determined to push reforms in the sector. On the political plank, both the BJP and the Congress had agreed to free the insurance sector. The exercise was initiated by former finance minister Manmohan Singh.

Not only finance minister Yashwant Sinha, but also Prime Minister Atal Bihari Vajpayee had promised to get the bill approved by parliament as soon as possible.