New Delhi: Overcoming efforts by some Opposition members to physically prevent it, the government succeeded in introducing two key legislations that would spur long pending insurance reforms, including raising of foreign holdings to 49% and potentially allowing a cap for the sovereign guarantee for state-owned Life Insurance Corp. of India’s (LIC) obligations.
The United Progressive Alliance (UPA) government introduced the Insurance Laws (Amendment) Bill, 2008, in the Rajya Sabha and the Life Insurance Corporation (Amendment) Bill, 2008, in the Lok Sabha.
The insurance amendment Bill is an omnibus legislation to change parts of three Acts: Insurance Act, 1938; Insurance Regulatory and Development (Irda) Act, 1999, and General Insurance Business Nationalisation Act.
The key changes proposed in this Bill are an increase in maximum permissible foreign investment in insurance companies to 49% from the current level of 26%, and a concomitant withdrawal of the condition, which required Indian promoters divest a part of their holding 10 years after commencing operations.
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“We welcome this announcement and we look forward to the Bill being approved soon. A simple calculation shows that raising the foreign direct investment (FDI) limit to 49% may increase the total FDI in the life insurance industry by almost 2.5 times from the current levels of approximately Rs2,500 crore,” T.R. Ramachandran, CEO and managing director of Aviva Life Insurance Co. India Ltd, said.
While the government had been keen to push ahead with insurance reforms, it had held back because of pressure from the Left parties which had been supporting the UPA. Indeed, major trade unions, which are backed by the Left, promptly announced a one-day nationwide strike on Tuesday.
“It is beyond imagination as to how the companies, which are struggling in their own countries are being allowed to increase stake in India,” said A.K. Bhatnagar, a joint secretary of the All India Insurance Employees Association, a body comprising the staff of public sector insurance firms.
Representatives of private insurers also sought to downplay the fear of short-term capital flowing in on account of an increase in FDI limit.
“Any reform in terms of increase in foreign ownership limit for the insurance industry is directionally desirable and is a welcome move. Given that life insurance is a capital intensive industry, this move will help insurers access larger international capital over a period of time. This FDI would be long-term foreign capital and not volatile money,” N.S. Kannan, executive director, ICICI Prudential Life Insurance Co. Ltd, said.
The Bill was introduced in the Rajya Sabha. Even if the Bill is not approved by this Lok Sabha, the proposed amendment won’t lapse.
In the Rajya Sabha, Communist Party of India (Marxists) MPs tried to stop the minister of state for finance, P.K. Bansal, from introducing the omnibus insurance Bill. An angry Pranab Mukherjee, the foreign minister, pushed back parliamentarian T.K. Rangarajan to protect Bansal.
Meanwhile, the LIC Bill was introduced in the Lok Sabha as it is a money Bill needing more government investment in the corporation.
Surprisingly, during the vote—normally, a Bill is introduced by a voice vote—forced by the Left parties, neither Congress president Sonia Gandhi nor her son Rahul Gandhi were present. A defeat, since it is a money Bill, would have forced the UPA government to resign.
LIC is the largest life insurer in the country and its policies are guaranteed by the government. Mint had reported on 3 May 2007 that the government was considering capping the sovereign guarantee on LIC’s obligations.
CPM’s leader in the Rajya Sabha, Sitaram Yechury, said, “The LIC alone has 6.5 lakhs crores (of rupees) of investable funds. Instead of using it to fund the infrastructure, the government is allowing the foreign players to handle it.”
Among the other key changes proposed in the insurance amendment Bill is the move to allow London-headquartered reinsurer Lloyds a chance to open a branch in India without registering under the Companies Act.
Lloyds is a society of reinsurers that provides highly specialized reinsurance.
PTI contributed to this story.