New Delhi: The Union cabinet has decided to table key Bills, including a controversial one that envisages raising the cap on foreign ownership of insurance firms, but this by itself doesn’t mean these Bills will be passed in the Parliament session that reconvenes on 10 December. Union finance minister P. Chidambaram expressed his doubts about clearance of the insurance Bills in the remaining term of the ruling United Progressive Alliance (UPA) government scheduled to end in May.
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Briefing the media about the Union cabinet’s decisions Chidambaram, said: “These are comprehensive amendments to reflect the current needs of the insurance sector.”
The government will table the insurance Bill when a “suitable opportunity” presents itself, Chidambaram said. A Union minister who did not want to be named said the Prime Minister was yet to decide on when to present these Bills and whether to introduce them in the Lok Sabha or Rajya Sabha.
Bills introduced in the Lok Sabha, but not cleared, lapse when the House is dissolved and will have to go through the process of being approved by the Union cabinet all over again before being represented. Chidambaram said it was likely that the insurance Bill would end up being studied by a committee. “It will go to a committee (parliamentary standing committee on finance),” Chidambaram said.
Typically, important Bills are sent by Parliament to a committee of parliamentarians who hold discussions with stakeholders and suggest changes to a Bill. At the end of this process, which takes at least a few months, the government can choose to either accept all or some of the committee’s changes or reject them and reintroduce the Bill.
One of the insurance Bills seek to raise the government’s paid up capital in state-owned Life Insurance Corp. of India Ltd (LIC) to Rs100 crore from the current Rs5 crore, the same as that mandated by insurance regulator Irda (Insurance Regulatory and Development Authority) for the 19 private life insurers operating in India.
Another seeks to enhance the cap on foreign direct investment (FDI) in private insurers to 49% from 26%. The Bill cleared by the Union cabinet does not split this between foreign portfolio investors (foreign institutional investors, or FIIs) and others, a government official familiar with the development said.
It also removes the need for Indian promoters to dilute a part of their holding 10 years after a firm starts operations, added the official, who didn’t want to be named.
“We welcome this announcement and are delighted that the increase in FDI to 49% has been approved by the Union cabinet and we look forward to the Bill being approved soon. A simple calculation shows that raising the FDI limit to 49% may increase the total FDI in the life insurance industry by almost 2.5 times from the current level of approximately Rs2,500 crore,” T.R. Ramachandran, designate managing director and chief executive officer, Aviva India, said.
And one of the Bills makes a special reference to Lloyds, a cabinet member present at the meeting, but who did not wish to be named, told Mint.
This allows Lloyds, one of the largest global reinsurers, to start operations in India as a foreign company without getting registered under the domestic Companies Act, the government official cited in the first instance said.
Lloyds is a UK-headquart-ered society of insurers, which provides a highly specialized reinsurance facility. The Union cabinet member added that some of his colleagues felt a few of the insurance amendments, including those that sought to raise the cap on FDI and allow Lloyds to operate here, were politically risky.
The Communist parties, which supported the UPA government till July when they withdrew support over the Indo-US civilian nuclear deal that they opposed, have been against several insurance reforms including raising the ceiling on FDI to 49%.
On Friday, the Communist Party of India (Marxist) issued a media statement which said: “The Politburo of the Communist Party of India (Marxist) strongly disapproves the decision of the Union cabinet to increase the ceiling for foreign capital entry into the Indian insurance... For the last four years this was not allowed to be done by the Left parties on whose support the UPA government depended.”
Prakash Javadekar, a member of the Bharatiya Janata Party, said his party would “take a decision only after seeing the Bill(s).”
Among other key provisions of the insurance amendment Bill is one that allows the four state-owned general insurance firms to raise more capital. The government of the day would have to take a policy call on dilution of stake when any of the four companies want to raise capital, the same government official said.
Right to Education
The Right to Education Bill makes it the duty of the Union and state governments to provide free and compulsory education. Chidambaram said the human resource development ministry would release the text of the Bill after consulting the Election Commission in view of the assembly polls in some states.
A group of ministers cleared the draft legislation in early October without diluting the content, including contentious provisions such as a 25% reservation in private schools for disadvantaged children from the neighbourhood at the entry level.
PTI contribued to this story.