India steps up reforms, this time in insurance, pension

New Delhi : Economic reforms in India received a further push Thursday, with the cabinet approving legislative changes that will allow up to 49 percent foreign equity in pension sector and hike such limit in insurance to 49 percent from 26 percent.

The cabinet meeting, presided over by Prime Minister Manmohan Singh, also approved other long-pending measures such as crucial changes in the Companies Act, and giving greater autonomy to the regulator to introduce more commodities and options for futures trading.

Keeping the momentum going on fresh doses of economic liberalisation measures being administered since last month, the United Progressive Alliance (UPA) government cleared 21 proposals Thursday, with the prime minister leaving little room for debate.

The decisions, announced by Finance Minister P. Chidambaram, included designating five domestic airports for overseas operations, bringing all the financial services under the Competition Commission and revamp of employment exchanges.

The cabinet also cleared the draft 12th Five Year Plan document (2012-13 to 2016-17), which targets an economic growth of 8.2 percent. This will now go to the National Development Council for adoption. Also cleared was a fund for infrastructure.

Unlike the decisions on retail, aviation and broadcasting, the approvals on insurance, pension and forward contracts in commodities need the parliament’s approval and could face rough weather from the opposition, especially the Bharatiya Janata Party (BJP).

It was not clear Thursday if BJP will support the proposals, since key leaders said they could consider them if all caveats were met. But Trinamool Congress of West Bengal Chief Minister Mamata Banerjee slammed the decisions, especially on insurance and pension.

The Parliamentary Standing Committee on Finance, headed by BJP’s Yashwant Sinha, had recommended foreign equity in insurance sector be capped at 26 percent, but was okay with the opening of pension business with a 26 percent foreign equity cap.

“The foreign equity limit in pension sector will follow the insurance sector. If in the insurance sector the cap is 49 percent, then in pension too the cap will be 49 percent,” Chidambaram said.

India’s insurance industry is valued at $41 billion with 24 companies in life insurance business and 27 in general insurance industry. The penetration is rather poor at 4.4 percent of the population for life and 0.71 for non-life business.

In pension, the regulator has appointed seven fund managers to seek investments under the new pension scheme. Official data shows that a mere 12 percent of India’s working population has some form of a retirement benefit.

The decisions on these two sectors is expected to go a long way in helping the domestic companies shore up their capital base, and also introduce new products and schemes that suit individual needs.

“The new instalment of big bang reforms is a clear message the government is determined to strengthen the economy,” said R.V. Kanoria, president of the Federation of Indian Chambers of Commerce and Industry (Ficci), reflecting India Inc’s mood.

“It has been a long pending step in the right direction to boost confidence of global insurers and investors. The insurance industry has been struggling on capital that will be now be forthcoming,” added Shashwat Sharma, Partner with global consultancy KPMG.

The announcements follow a set of major reform measures last month like allowing up to 51 percent foreign equity in multi-brand retailing and up to 49 percent stake to global airlines in domestic aviation, while bringing parity in broadcast and telecom sectors.

This apart, the government had also raised the prices of diesel to help oil-retailing companies bridge losses on account of selling the fuel below cost and limiting the dole on domestic cooking gas to six cylinders per annum against unlimited supplies earlier.

In anticipation of Wednesday’s move, the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) had vaulted 188 points, or 1 percent, to 19,058 points, touching a 15-month high. The cabinet decisions came after the close of markets.