‘Insurance Bill a low hanging fruit,needs to be passed soon’

Passage will signal that the reform process is continuing: Rajan.

Written by ENS Economic Bureau | New Delhi | Published: May 1, 2013 1:08:37 am

With the logjam in Parliament unlikely to be resolved soon,the finance ministry on Tuesday made a fervent plea for passage of key reform Bills,including those which seek to hike foreign direct investment in insurance sector and roll out of goods and services tax (GST). “If I could get assurance on those two Bills (insurance FDI and GST),it would create a much stronger sentiment that things are going in right direction,” said Raghuram Rajan,chief economic adviser to the finance ministry.

While admitting that the enactment of the Insurance Bill was purely a political decision,he said its passage would send signal to markets and foreign investors that the reform process is continuing.

“We must remember,we are not out of the woods yet,” he said. Terming the Insurance Bill as ‘a low-hanging fruit’ that would be good for the country in general,Rajan said there is hardly any economic rationale to disallow a higher FDI limit in the sector. “Banks are the life blood of the country. If we have allowed 74 per cent FDI in banks,what is the rationale in permitting only 26 per cent in the insurance sector?”

The UPA government has been keen to increase the FDI limit in the insurance sector to 49 per cent from 26 per cent. Finance minister P Chidambaram recently called it the government’s ‘top agenda’,but the related Insurance Laws (Amendment) Bill,2008 has been hanging fire due to opposition to any further liberalisation in the sector. While the Standing Committee on finance has suggested that the government should re-think its proposal to hike FDI in insurance,the provision has also been opposed by the BJP and the Left parties. Though the chief economic adviser did not comment on a timeline for the enactment of the Bill,he ruled out the possibility of hiking the FDI cap through an ordinance or diluting the stand on 49 per cent FDI.

‘CAD likely to be below 4% in Q4’

The current account deficit is likely to be below 4 per cent of the GDP in the fourth quarter of 2012-13,chief economic adviser to the finance ministry,Raghuram Rajan,said.

“However,there will be volatility in the number during the course of the year (2013-14). I don’t think it has stabilised at below 4 per cent,” he said. The CAD touched a record high of 6.7 per cent in the third quarter of the last fiscal and 5.4 per cent in the first nine months of 2012-13.

“It will come down below 5 per cent this year (2013-14). We have to bring it below 4 per cent next year. And even lower thereafter,” he said.

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