Monday, Sep 22, 2014

Cabinet clears 49% insurance FDI

Insurers will now be able to raise much needed capital from foreign partners and expand the business. (Source: Reuters) Insurers will now be able to raise much needed capital from foreign partners and expand the business. (Source: Reuters)
Written by D K Singh , Surabhi | New Delhi | Posted: July 25, 2014 2:28 am

Two crucial pieces of legislation which have been hanging fire for long — the Securities Laws (Amendment) Bill and Insurance Laws (Amendment) Bill — are set to be cleared in the current session of Parliament. The NDA government is also learnt to be working on getting the Parliament’s nod for a legislation that provides for the setting up of the National Judicial Commission.

The Budget Session, originally scheduled till August 14, is likely to be curtailed by a week, after the passage of these pieces of legislations — at least the first two.

Setting the stage, the Cabinet Committee on Economic Affairs (CCEA) on Thursday cleared the plan to increase foreign direct investment (FDI) in the insurance sector from the existing 29 per cent to 49 per cent. It also cleared the Securities Bill, aimed at empowering market regulator SEBI with raid, search and seizure powers to crack down on ponzi schemes and investment frauds.

To address concerns about the powers to raid — as voiced by the parliamentary standing committee on finance earlier — the CCEA was learnt to have provided for setting up special courts in Mumbai to authorise such action. The previous regime was of the view that an internal authorisation by SEBI chairman should be sufficient. The UPA government had taken the ordinance route twice to give these powers to the SEBI, but it had lapsed on both occasions.

Official sources said both the Insurance Bill and the Securities Bill will be passed by Parliament in this session as there is political consensus on them. Given that the previous UPA government pushed for both the Bills, the NDA government is confident of securing the Congress’s support in Parliament. Congress sources said Finance Minister Arun Jaitley had got in touch with them on the Insurance Bill and the party had assured its support.

If the government’s move goes through, it will end an over eight-year logjam in the insurance sector where, despite repeated efforts, FDI has remained capped at 26 per cent. According to the proposal approved by the CCEA, the insurance sector would have a composite FDI cap of 49 per cent. While FDI up to 26 per cent would be under the automatic route, companies would have to take approval from the Foreign Investment Promotion Board for more foreign investment.

Significantly, voting rights of the foreign partner have not been capped, although insurance firms will be under the management and control of the Indian partner. This would mean that the Indian partner would have the right to appoint a majority of directors, and be able to control management and policy decisions.

“The issue on voting rights will have to go to Parliament. But we prefer a 49 per cent cap without any continued…

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