IRA back with caps and props

While Committee Chairman, Murli Deora of the Congress, said after the meeting that there was a 8220;near unanimity8221; during the hearings, some MPs were clearly dissatisfied. CPM member Rupchand Pal submitted a nine-page dissent note arguing that foreign participation would lead to 8220;unethical practices8221; and CPI8217;s Gurudas Dasgupta said he would submit his dissenting note by Friday.

Deora later told The Indian Express that the MPs would be given about a week8217;s time to file their dissenting views. He said this final report would be submitted to Parliament before the recess on March 18. With Deora committing that the final report will be submitted before March 18, the stage is set for the bill being passed in the current session itself.

Deora8217;s formula, interestingly, is much the same proposed by the government earlier, as a face-saving formula to win support of the Swadeshi faction within the BJP which wished to lower foreign equity. Under that formula, it was decided that the 14 per cent equity stake reserved for Non-Resident Indians NRIs and their financial institutions called Overseas Corporate Bodies, or OCBs would be subsumed within the 26 per cent cap for foreign equity.

In other words, while the government had earlier proposed that foreigners be allowed to hold 40 per cent equity 8212; 26 per cent directly and 14 per cent for NRI/OCBs 8212; the new formula would have restricted the total foreign equity to 26 per cent. This was, however, rejected by the Prime Minister who felt that it would be incorrect to bow down to the Swadeshi lobby. In the event, when the Bill was introduced in the last session of Parliament, it kept the total foreign equity at 40 per cent.

The new proposal by the Standing Committee, to keep the total foreign equity at 26 per cent, will now ensure that even after ten years, when the insurance partners have to divest some part of their initial stake to the public, both the Indian and foreign partners will have an equal share, or 26 per cent each.

The committee has also sharply hiked the net worth requirement of insurance companies 8212; this was a mere Rs 50,000 under the original Insurance Act of 1938. This minimum floor has been hiked to Rs 200 crore for life insurance companies, and Rs 100 crore for others. Hiking the minimum limit was a major demand of the Congress which felt that only large and solvent players should be allowed to get into the business since it involved the savings of millions of people. Solvency margins, previously low, have also been hiked significantly for the same reason.

Another concern of the Congress, which insisted that the original bill be referred to a Standing Committee, was that the government had the power to over-rule the Insurance Regulatory Authority, and could undermine its authority at will. This provision has now been reworked to ensure autonomy to the IRA.