Yashwant Sinha, chairman of the parliamentary standing committee on finance, a senior Bharatiya Janata Party (BJP) leader and a former finance minister, says reforms do not necessarily mean allowing foreign direct investments (FDI) into the country. Amid allegations that the standing committee is delaying economic reforms, Sinha explained the panel’s opposition to key Bills such as the insurance amendment, the banking laws amendment and legislation to create an authority to oversee the Aadhaar project under which Indian residents will be provided unique IDs. In an interview, Sinha also questioned the government’s reluctance to disclose the names of Indians who have illegally stashed away money abroad. Edited excerpts:
Sinha talks about the kinds of reforms he would like to see and what he believes is the greatest economic blunder of recent times
How do you react to the allegation that the standing committee is blocking reforms?
I completely dismiss this allegation. There is a general feeling in this country that economic reforms means FDI; they don’t mean construction of national highways, rural roads, etc. If you do something for FDI, then you are a great reformer; if you do anything else, it does not mean much. First of all, I am only the chairman of the standing committee and I am not the standing committee. The committee consists of 30 other members belonging to all (political) parties. According to norms, standing committee membership is given in proportion to the strength in Parliament, so in every standing committee there is always a majority of the ruling party and the ruling coalition. When we adopted the three reports, there were no dissent notes except one (that) came from a Left party member. The reports on insurance and banking were unanimous. There was some form of dissent as far as UIDAI (Unique Identification Authority of India) was concerned.
Let’s take the three Bills. As far as the insurance Bill is concerned, yes, we have rejected raising FDI to 49% (from 26%).
The committee said that if the recapitalization of insurance companies was needed, then we should go back to the structure of equity holding, which is in the original Bill in 1999, which I had piloted. What is that structure? The Congress in 1999, during the informal discussions, restricted me to a 26% cap in FDI. We said Indian partner investment will be 74%, but we stipulated that after 10 years, the Indian promoter of the company will go to the stock market and divest until his own shareholdings came to 26%. It was envisaged in the Bill itself that after 10 years we have a picture where the foreigner will hold 26%, the Indian promoter will hold 26%, and 48% will be held by the people of India through the stock market or whatever.
Then we looked at the requirement of funds. How much money is required for recapitalization? Irda (Insurance Regulatory and Development Authority) said Rs 40,000 crore, the finance ministry said Rs 60,000 crore spread over a period of five years. It means Rs 12,000 crore per year. What has been the market performance? We looked at figures for three years—2007-08, 2008-09 and 2009-10. It was Rs 85,000 crore in 2007; in 2008, it was a bad year so it was Rs 28,000-29,000 crore and then again it went up to Rs 56,000 crore in 2009, and on the basis of these figures and performance of the companies which went to the market, we said there is appetite and capacity in the Indian stock market to meet the additional capital requirement of the insurance sector. Why are you asking for this route? And what happens after raising FDI to 49%? Foreign investors will raise (their stake) to 49% and the Indian promoter will be left with 51% then, which means there is no (stake left to sell in the) market.
Economic barrier: Sinha says the original sin in recent years, as far as the economy is concerned, is the unacceptable expansion of the fiscal deficit in 2008. Ramesh Pathania/Mint
In the original Bill, the minimum capital requirement is Rs 100 crore. Nobody is saying you cannot go to Rs 1,000 crore even today. So, we said that you ask the companies to raise (their) capital base and go to the market; if in Rs 100 crore, Rs 26 crore came from the foreign investor, then in Rs 1,000 crore, foreign investment would be Rs 260 crore.
So the entire committee was not convinced. So we said keep it at 26%.
As far as banking law was concerned, in a private sector bank, voting rights are limited to 10%. So looking at the worldwide phenomenon and the kind of crisis in which companies have got into in the West in 2008 and still continuing today, the committee was of the opinion (that) we must proceed cautiously. So we said raise it from 10% to 26% and give equity holders special powers, so they will have a say in the management if they want to. And the government, instead of coming in a piece-meal fashion, should now come to Parliament with an integrated banking law for the entire banking sector.
Now in UIDAI, there were differences of opinion within the government. The latest was the home ministry, which raised concerns of national security risk. Also, there is this very peculiar provision in the Bill that if a person cannot produce any evidence (of identity), then all that he needs to do is to go to a person who has an Aadhaar number and get the card on his recommendation.
Then the safety of the information collected, it is the private companies which are tasked with collecting biometric details; we agreed with the home ministry that there are many lacunae with the Bill threatening national security.
Then the issue that only 200 million out of the 1.2 billion population will be covered by UIDAI and the balance will be covered by NPR (National Population Register), so we returned the Bill saying we cannot accept it in its current form. The issues of cost were also involved in it.
The BJP has been raising the issue of black money and corruption. What are the BJP-ruled states doing about tackling it?
The debate in Parliament yesterday (on Thursday) was about illegal accounts abroad; many people missed this. Advaniji’s concerns were about the bank accounts abroad and the demand was to bring it back to India. (The reference is to senior BJP leader L.K. Advani.)
Do you agree with the government’s argument that if the names are disclosed, India will not get information in the future?
It does not for a simple reason. This is not merely an income tax matter. This is, like the Supreme Court said, about stealing of national wealth. It has wider perspective; it has to be treated as a gross illegal act. The whole demand was that these people should be booked. The Liechtenstein account information has been with the government for three years; why haven’t you completed investigation?
The money is in a Swiss bank; there is no evidence that the money was earned in France. The French government was only a vehicle that provided the data. So it is not covered under the Double Taxation Avoidance Treaty. If our finance minister agreed to the French finance minister that we will not disclose the names, then it shows a lack of understanding.
You were recently cited as saying finance minister Pranab Mukherjee is only paying for the sins of his predecessor P. Chidambaram. Can you explain why?
I regard the original sin in recent years, as far as the economy is concerned, is the unacceptable expansion of the fiscal deficit in 2008. The government described it as a stimulus package, but this was meant for wooing of voters. If you look at the deficit, it went up from Rs 123,000 crore to Rs 333,000 crore—about a Rs 210,000 crore increase. It means the government pushed demand, consumer demand, and that resulted in inflation. To control inflation you raised interest rates, now both...have gone over the roof.
It has been the bane of India’s economy. It lead to the decline in investment, decline in GDP (gross domestic product) growth...all directly related to the fiscal deficit. And Chidambaram took shelter behind (the) global crisis. Although there is not even a mention of the global crisis during his budget speech... Then he came out with a waiver of loans for farmers. He said it was a stimulus; the Sixth Pay Commission was a stimulus. The Pay Commission work was well before the subprime crisis—it was all meant to win votes. And this has been our charge from the beginning. And this is responsible for the present crisis.