In what could be a major blow for the government?s plans to attract more foreign investment as it tries to tackle the twin troubles of a volatile currency and a bloated current account deficit, the principal opposition Bharatiya Janata Party has said that it is not in favour of raising the ceiling of foreign direct investment in the insurance sector.

BJP leader Yashwant Sinha told FE that his party will not support the insurance amendment Bill, which proposes that the FDI cap in the insurance sector be upped from 26% to 49%. ?We have advised the government not to bring the Bill in Parliament,? Sinha said, adding that any possible changes to the Bill will also not be supported, even if they dilute the control and ownership held by a single foreign investor in an Indian company.

The Parliamentary standing committee on finance, which Sinha heads, is opposed to the proposal of seeking additional foreign investment in insurance and has said that Indian companies should seek ways to increase financing from local capital markets. The BJP has also in the past accused the government of not wanting to have a debate on the Bill.

Sources say that the UPA government may try to bring in changes to the Bill that may make it easier to pass muster in Parliament. The government is running against time as it looks to bring in the foreign funds required to finance the deficit bill ? and that too in a sector like insurance, which industry watchers say needs a huge influx of investment.

These changes are likely to include capping the voting rights of a foreign direct investor in an Indian company at 26%, or keeping the FDI cap at 26% and allowing short-term foreign institutional investment (FII) of upto 23%. Both these possible changes will likely allay concerns about a single foreign player being dominant in the insurance sector. However, Yashwant Sinha said that even with these proposed changes, the BJP will not support the passage of the Bill.

Experts also say that such changes will be detrimental and may stave off foreign investors who are eying a bigger stake in the Indian insurance sector. They say that the sector, which is burdened with losses, urgently needs long-term capital for expansion and increasing penetration, in an environment where Indian companies are finding it difficult to raise financing from

domestic markets.

?I don’t think these changes will be fair. Obviously if a foreign investor puts in money and takes a big stake, he or she will want voting power. It will certainly impact the insurance sector and will have a negative outcome for it,? Punit Shah, co-head of tax at KPMG told FE.

?If any such changes are made, big global insurance players looking to enter India through joint ventures will be reduced to holding a portfolio stake. They can?t come into India as JV partners. The board seats and veto powers will be restricted accordingly,? said Preeti Malhotra, executive director at Spice Global and a corporate affairs expert who has advised the Indian government on the Company Law.

?I think it is a dampener. This may lead to loss of possible investment for the sector and even if a possible 23%FII limit is brought in, in terms of long term money, it will be zero additional investment for the sector,? Malhotra told FE.