Foreign insurers may continue to be prevented from hiking stakes in their Indian joint ventures beyond 26%, with the parliamentary standing committee on finance poised to oppose the move to hike the limit to 49%. Raising the ceiling on foreign direct investment (FDI) would have helped the insurance JVs to raise capital and expand.
Sources say the majority of members in the standing committee on finance are opposed to the move as ?it would tantamount to giving control of the country’s robust financial sector to the hands of foreigners.? Members from BJP, CPI(M) and BJD have expressed this view, said a source familiar with the committee’s deliberations.
?The opposition has already shaken the government that has urged the committee to put its final report on the matter on hold and try to build larger consensus? said another source privy to the development.
Although the House panel?s opinion is not binding on the government, the precedent is that on such crucial matters, the government goes by the majority opinion/consensus of the committee.
The government referred the Insurance Laws (Amendment) Bill to the Committee soon after its introduction in Parliament in 2008 and is waiting for its report before formally approaching the Parliament for approval of the revised Bill.
Recently, finance minister Pranab Mukherjee met Yashwant Sinha, chairman of the standing committee and reportedly urged him to submit the report given the lack of consensus on FDI limit. ?The panel is likely to submit the report not before the winter session,? one of the sources said.
Sinha refused to share details of panel’s discussions with FE, but said the Bill was still pending with the committee and the report was likely to be submitted only in the winter session. ?This session, I don’t think we are going to (submit the report). Hopefully, we will be able to submit it in the next session,? Sinha said.
Ever since its introduction, the Insurance Bill has been in the midst of controversy with sharp divisions among political parties and consequent indecision. The Left parties questioned the rationale for raising the FDI cap ?when domestic insurance companies were performing well.?
The opposition in the standing committee is going to hit the government’s financial sector reform plans. Last month, Prime Minister Manmohan Singh had said that the government wants reforms in the financial sector but there is no effective national consensus. ?I hope to generate the broad climate for all political parties to agree to reforms,? he had said.
The industry has been lobbying to liberalise the sector further as it believes that this capital-intensive sector requires continuous inflow of capital to fund expansion. The industry expects a two-and-a-half-fold jump in foreign investment in insurance sector, once the sector is opened further. According to CII, there is a strong need to raise FDI cap in the insurance sector to raise the penetration level, particularly in the rural market.
Indian insurance companies already has joint ventures with foreign peers like ERGO International AG, Prudential Plc, ING Group, Allianz and Aviva. These companies will be able to increase their investments in their Indian ventures if the FDI limit is increased.
British insurer Standard Life Plc, which has joint venture with HDFC, has already shown interest in increasing their stake, if the FDI norms are relaxed. Currently, it holds 26% stake in the joint venture HDFC Standard Life Insurance Company. New York Life, which has jointed venture partnership with Max in India, is too interested in raising their stake in their joint venture Max New York.