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Business News/ Politics / Policy/  Insurance Bill now holds the key to FTA with EU
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Insurance Bill now holds the key to FTA with EU

Negotiators to meet in Brussels next week to thrash out key issues; trade ministers to meet in April to close the deal

A file photo of the European Parliament in Strasbourg, France. India also wants the EU to declare the country data-safe, which will help information technology and outsourcing companies. Photo: AFP (AFP)Premium
A file photo of the European Parliament in Strasbourg, France. India also wants the EU to declare the country data-safe, which will help information technology and outsourcing companies. Photo: AFP
(AFP)

New Delhi: The much-delayed free trade agreement (FTA) between India and the European Union (EU) may finally get through if the government is able to amend the law to allow greater foreign investment in Indian insurance firms.

Chief negotiators of the two sides are scheduled to meet next week in Brussels to thrash out the remaining issues in the deal. This will be followed by a meeting between trade ministers from both sides in April to close the deal.

Talks on the bilateral trade and investment agreement started in 2007. The two sides have missed at least four deadlines to complete negotiations.

“There is a very good chance" of reaching a deal this time, a commerce ministry official said, speaking on condition of anonymity. “Everyone knows they (EU) are interested in opening up the insurance sector. Let’s see what happens in Parliament."

Of the 23 private life insurance companies operating in India, 11 are joint ventures with European insurers. Of the 21 private general insurance companies in the country, seven are partnerships with firms headquartered in Europe.

The insurance amendment Bill proposes to raise the foreign direct investment (FDI) cap for the sector to 49% from 26%, but the standing committee on finance, headed by main opposition Bharatiya Janata Party leader Yashwant Sinha, is against this.

The government is trying to forge a consensus with opposition parties to ensure passage of the Bill and may table the Bill in Parliament in the second half of the budget session, said a finance ministry official, also declining to be identified.

The finance ministry is also exploring an option to allow foreign institutional investors to hold up to a 23% stake in Indian insurance firms, maintaining the FDI limit at 26%, if a consensus can’t be reached.

“We have heard from some of the foreign promoters. Let’s see what can be done. Political consensus is needed to push through the bill," the finance ministry official said.

Asked if the meeting in Brussels will be the last round of talks for a EU-FTA deal, the commerce ministry official said: “In a way yes, but discussions would still continue to fine tune the deal. I would call it a critical round."

EU ambassador to India Joao Cravinho last month warned of “a closing window" of opportunity given that India’s general election is scheduled for next year.

Cravinho said differences over services—the mobility of professionals without restrictions that India has been pitching for—were more serious than those over reducing tariffs in the auto and wine and spirits sectors.

India also wants the EU to declare the country data-safe, which will help information technology and outsourcing companies. The EU, however, maintains the issue is not part of the FTA negotiations and should be dealt with independently.

“We will certainly be very supportive of India getting data adequacy status... It’s in India’s interest because there are billions of dollars of business involved, but it’s also in our interest because European companies will gain by using Indian companies to do their data processing. It will reduce our costs," Cravinho said.

T.S. Vishwanath, principal adviser at APJ-SLG Law Offices, said the trade negotiations between the two sides are heading towards a conclusion as a majority of the issues have been sorted out. “On issues like reducing tariffs on automobile imports, India needs to convince the EU that it has a road map even if it does not eliminate duties at one go. Similarly, EU also needs to tell India how India can become a data secure country. A deal does not quite look difficult now," he said.

Apart from insurance, the EU may insist on making FDI in multi-brand retail more flexible as it considers the current policy complex, said Arpita Mukherjee, professor at the Indian Council for Research on International Economic Relations.

“EU may insist on further liberalizing the sourcing clause, making backend investment requirements flexible and allowing FDI in e-commerce," she said. Opening up the retail sector for foreign investment was one of the key demands of the EU. India last year allowed 51% FDI in multi-brand retail and 100% FDI in single-brand retail.

Though the commerce ministry says it had no plans to allow FDI in e-commerce, Planning Commission deputy chairman Montek Singh Ahluwalia on Friday signalled a change in government’s thinking. “I have expressed my view that if we have FDI in conventional retail, the same principle should apply in online retail. Many people have brought this to my attention. I propose to raise this with (commerce minister) Anand Sharma," he told reporters.

asit.m@livemint.com

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Published: 10 Mar 2013, 10:25 PM IST
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