FDI in insurance

GIVING another push to reforms, the UPA government has allowed foreign investment in insurance and pension funds, placing the cap at 49 per cent. This is subject to Parliament’s approval. The government does not have the numbers in the Rajya Sabha and expects a bailout from the principal opposition party, the BJP, which has been put to an unexpected test. The BJP had indicated that it was open to foreign direct investment (FDI) in sectors other than multi-brand retail. The parliamentary committee on finance, headed by Yashwant Sinha of the BJP, had suggested the FDI cap in insurance at 26 per cent. The party’s stance on the 49 per cent cap, which has been welcomed by the industry, stock markets and the urban middle class, will decide the fate of the government move.

As a principle, the Left parties and Trinamool Congress are opposed to foreign investment. The opening up of the pension sector to foreign investment is particularly a red rag to the Leftist bulls. They fear that foreign funds’ presence in pensions can make the sector vulnerable to global financial quakes. But their opposition, as also of Mamata Banerjee, is irrelevant as long as the Samajwadi Party and the Bahujan Samaj Party support the government. Showing flexibility, the government says it is open to changes in the pension Bill to provide for the safety of investment and a guarantee of minimum returns.

Currently, a vast majority of Indians, particularly in villages, have no access to pension. Only 4.7 per cent of the 1.2 billion Indians have an insurance cover. The scope for growth in both sectors is huge. Foreign companies already have up to 26 per cent stake in Indian insurance companies but have been hampered by excessive regulation and shortage of capital. More capital infusion will spur growth in these sectors. The pension and insurance Bills have been pending in Parliament for long. The Congress rides on the hope that the BJP would cooperate. The BJP has no logic in accepting a 26 per cent FDI limit and rejecting a 49 per cent cap.