Parliament passes insurance bill in a major boost to Modi’s reform agenda
The bill raises the overseas investment cap in insurance companies to 49% from 26%
New Delhi: In a major boost to the government’s reform agenda, the Rajya Sabha on Thursday gave the go-ahead to the insurance bill, raising the ceiling for foreign investment in the sector.
The upper house’s nod for the Insurance Laws (Amendment) Bill, 2015, puts Parliament’s seal of approval on the legislation, which seeks to raise the overseas investment cap in insurance companies to 49% from 26%. The Lok Sabha on 4 March approved the bill, which will become an Act when the President signs it.
The passage of the bill by Parliament clears the air of uncertainty that had taken root after the government was forced to enact ordinances when it failed to get legislative backing for the insurance reform and other key legislative measures.
The enactment of the bill will also raise the foreign investment cap in the pension sector since it was linked to the ceiling in the insurance sector at the time of the passage of the Pension Fund Regulatory and Development Authority bill in 2013.
The Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) was able to turn the tide its way in the upper House, where it is in a minority, after the Congress decided to support the bill—signalling a rare consensus between the two national political parties on a key economic reform.
The move to increase the foreign investment cap in insurance companies will kick-start the industry, which has been struggling for lack of capital. It would also boost infrastructure funding since only an insurance corpus can fund long-gestation public works projects.
While raising the overseas investment cap, the insurance bill carries a rider that management control would be in Indian hands. The higher foreign investment ceiling will be a composite cap and could include both foreign direct investment (FDI) and portfolio investment.
The bill, moved for passage by minister of state for finance Jayant Sinha, was passed after hectic talks between the government and the opposition, which saw the Congress and other parties like the Biju Janata Dal and Nationalist Congress Party supporting the bill in the upper house, where the ruling alliance is in a minority.
“Insurance is a capital-intensive industry. The insurance companies need to provide for future claims. If we provided legislative assurance and stability, foreign capital will come in which will help in expanding the insurance coverage in the country,” said Sinha. He also assured the house that the definition of management and control will be aligned with the definition in the companies act to avoid any ambiguity.
The NDA has the support of only 57 members of Parliament (MPs) in the 245-member upper house while the Congress has 67 MPs and the BJD seven.
The Communist Party of India (Marxist), with nine MPs in the Rajya Sabha, opposed the higher cap.
The passage of the insurance bill in Rajya Sabha also raises hopes of legislative passage for some other crucial bills like the Coal Mines (Special Provisions) Bill and Mines and Minerals (Development and Regulation) Amendment Bill, 2015, which have been referred to a select committee by the house.
But the opposition is expected to continue opposing amendments to the land acquisition act.
The government had promulgated an ordinance in December last year to push through insurance reforms after the bill was stalled in the upper House despite a select committee supporting the main clauses of the bill. But the slew of ordinances, followed by the government’s attempt to withdraw some bills, including the insurance bill, from the Rajya Sabha, had sparked accusations by opposition parties that the government was trying to bypass the legislature.
The higher FDI cap has been a long-pending demand of the capital-intensive insurance industry with the legislation pending for more than 10 years. But it has seen the major political parties—the BJP and Congress—switch their stands to stall the passage of the bill while sitting in opposition benches.
Besides facilitating a higher cap, the insurance bill will also give more powers to the insurance regulator—the Insurance Regulatory and Development Authority of India—like deciding on commissions and imposing higher penalties on companies for any irregularities. The bill also proposes to hold the insurance companies responsible for any wrongdoing by their agents.
The passage of the bill was welcomed by the industry, with a few companies announcing that they will be soon approaching the foreign investment promotion board to increase the stake of the foreign joint venture partner.
Sunil Bharti Mittal, chairman, Bharti Enterprises, said AXA—its foreign joint venture partner in Bharti AXA Life and Bharti AXA General Insurance—will increase its stake to 49%.
Rahul Khosla, managing director, Max India Ltd, said Bupa, its foreign partner in its health insurance company—Max Bupa Health Insurance Co.—will increase its stake to 49%. However, Max has no pre-committed contractual obligations to dilute its stake in its life insurance company Max Life Insurance.
“For some of the more established players, it opens up possibilities for IPOs (initial public offerings) as well as capital for acquisitions, which will allow consolidation in the industry. Equally it would encourage new entrants and other players desirous of increasing their capital contribution to the sector to do so through the FDI route,” he said.
Analysts point out that the 49% composite cap will not only allow foreign partners in insurance joint ventures to raise their stakes and new foreign companies to enter India, but will also allow cash-strapped domestic promoters to dilute their stake in favour of private equity and other investors.
“We should see more than Rs.20,000 crore of foreign capital coming into the life and general insurance industry in the next two years. Many global investors, who considered India to be a very attractive insurance market, will now look to enter,” said Shashwat Sharma, a partner at KPMG India. “Also with foreign reinsurance companies allowed to set up wholly-owned branches, the capacity of the reinsurance sector will increase.”
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