July 16, 2021
The government is moving to amend one of India’s main insurance laws to facilitate the privatisation of a state-owned general insurance company, as proposed in the Union Budget this February.
The Finance Ministry is expected to introduce a Bill to amend The General Insurance Business (Nationalisation) Act, 1972, in the Monsoon Session of Parliament that begins on Monday.
The privatisation of a general insurance company and two state-owned banks was one of the key reform proposals in the Budget. The insurance Act must be amended before a state-owned insurer can be privatised.
“We are trying to introduce the Bill. We have got it ready from our (the department’s) side. A number of consultations have been held on the issue,” a senior government official said when asked about the progress on the privatisation proposal.
Sources said the Bill can be put on the legislative agenda of Parliament soon after it is cleared by the Cabinet. A Bill to increase foreign direct investment in the insurance sector to 74 per cent from 49 per cent was cleared by Parliament in its Budget Session in March. “Privatisation and assets sales are a priority, it is the stated policy now. We are on track as far as the Budget proposals relating to strategic sale and privatisation are concerned,” another government official said.
The Centre has set the disinvestment target for 2021-22 at Rs 1.75 lakh crore, lower than the Rs 2.1 lakh crore in 2020-21.
A priority for govt
The government has prioritised privatisation plans, as asset sales are crucial to generate funds needed to boost capital expenditure. The proposed amendments will enable privatisation of a PSU insurer, and reinforce the Centre’s stated policy to reduce its presence in businesses.
In her Budget speech on February 1, Finance Minister Nirmala Sitharaman had said: “Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22. This would require legislative amendments and I propose to introduce the amendments in this Session itself.”
The government has not yet disclosed which of the four public sector general insurance companies — New India Assurance, United India Insurance (UII), National Insurance Company (NIC), and Oriental Insurance Company (OIC) — it intends to privatise. The Finance Ministry will choose the company in consultation with NITI Aayog and a core group of secretaries on disinvestment.
The government had earlier dropped a plan to merge UII, NIC, and OIC, and decided to recapitalise them. The government also owns the reinsurer General Insurance Corporation (GIC Re). GIC and New India Assurance are listed on the stock exchanges, the other three companies are not.
The general insurance business in India was nationalised by the 1972 Act. The government of India took over the shares of 55 Indian insurance companies, and the undertakings of 52 insurers in the general insurance business.
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