Pro-reform pep pill for FDI

Private insurance companies cheered the move to up foreign investment in insurance to 49 per cent from 26 per cent, but said they were unhappy with the new 10 per cent service tax on the risk premium for life insurance policies.

‘‘India is an under-insured country and such a service tax will unnecessarily make the policy expensive and also complicate the payment of life insurance premium,’’ said Shivaji Dam, managing director, Kotak Mahindra Life Insurance. He added that in a long-term business like life insurance, it was not appropriate for the tax levy to change so frequently. Experts said they had hoped for additional exemptions and that the maturity proceeds of single premium insurance products would not be taxed. Neither happened.

Welcoming the hike, Stuart Purdy, managing director, Aviva Life Insurance said Indian insurance had huge, untapped potential. ‘‘The raising of the equity cap will not only bring more money but also help in expanding the industry,’’ he added. He said now many more foreign insurers would be interested in entering the market.

CIVIL AVIATION

Leasing worries for those learning to fly

The FM’s announcement to increase FDI participation in the sector from 40 to 49 per cent has been welcomed. ‘‘It is good. But was expected after the clause on capping FDI at 49 per cent was introduced in the restructuring of Delhi and Mumbai airports,’’ said an industry source.

The proposal to withdraw the tax exemption for companies leasing aircraft or aircraft engines has come as a major setback to the industry, which assumes the re-imposition of a 48 per cent tax deduction at source for any company leasing aircraft. Civil aviation minister Praful Patel is expected to write a letter to Chidambaram on the adverse effectof this move. ‘‘Many of the new airlines start with leasing aircraft. With the tax being re-imposed, these companies will obviously do a rethink,’’ said Air Deccan CEO Capt. G. Gopinath.

Another announcement that has caused concern is the levy od 10 per cent service tax on airport services. While details are yet to emerge, the airport services is a broad category which would include navigation charges, landing and take off charges, hangar services etc.

TELECOM

FM finally makes the right connection

The Finance Minister’s decision to hike the FDI limit in the telecommunications sector is expected to give a major fillip to the sector by bringing in more funds. Industry players have welcomed the move stating that it would now be possible to upscale operations.

Bharti Enterprises’ chairman & group managing director Sunil Mittal said the hike in FDI cap would give a major boost to the sector. ‘‘Companies can now access foreign capital markets to serve the hinterland and bringing affordable telecom services.’’

Tata Industries’ Managing Director Kishor Chaukar said the hike would channelise more funds into telecom apart from increasing the flexibility of the operators.

‘‘These are very much needed,’’ he pointed out.

BPL Communications’ chairman Rajeev Chandrasekhar explained that the FDI hike would not materially affect his company. ‘‘The industry, however, will be enthused by the fact that the government is looking at issues relating to investment in the telecommunications sector,’’ he added.