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New Delhi: The government on Friday notified rules for raising the foreign investment limit in insurance, sending the opposition a message of its resolve to press ahead with economic reforms through legislation in the budget session of Parliament. The increase in the foreign investment limit in insurance joint ventures from an earlier 26% was brought about through an ordinance promulgated in December. According to the notified rules, foreign direct investment (FDI) of up to 26% of total paid-up equity of an insurance company shall be allowed through the automatic route, or without the need for prior government approval, the finance ministry said in a statement on Friday.
FDI proposals which take total foreign investment above 26% will have to be cleared by the Foreign Investment Promotion Board. Raising the FDI limit in insurance is a key test of the Bharatiya Janata Party-led government’s determination to push through economic reforms. Resistance from opposition parties has forced thegovernment to take recourse to ordinances. In the budget session, six of these are due to come up for legislative approval that will see them being replaced by laws. These include those on insurance, land acquisition and coal block allocations, which will lapse and will have to be re-promulgated in the absence of parliamentary passage for the legislation.
The move by the government to notify the rules reinforces its commitment towards economic liberalization, said Akash Gupt, executive director at consulting firm PriceWaterhouseCoopers. “I would have been surprised if rules were not notified before the budget even after ordinance is issued,” he said. On Thursday, finance minister Arun Jaitley, who will present his first full-year budget on 28 February, criticized opposition parties for blocking economic reforms. “Those who have a vested interest in keeping India poor and keeping the poor of India poor would like a debate that none of these steps must be taken,” he said. At the same time, the governmenthas made overtures to the opposition, including the Congress-led United Progressive Alliance, for cooperation to ensure the passage of key legislation. “We want cooperation from the opposition, the economy needs it now. It is waiting in the wings to bloom.
We in India need the rules to change, the laws to change. We want to engage with the stakeholders,” trade minister Nirmala Sitharaman said on Friday at an event organized by an industry lobby group. Congress leader Ahmed Patel on Friday wrote on Twitter: “It will be bizarre for government to be expecting support from Congress after it has diluted UPA’s policies & programs for needy.” The Insurance Laws Amendment Bill, 2008, could not be taken up for discussion in Parliament during the last session despite being approved by the select committee of the Rajya Sabha because of uproar over other issues.
The National Democratic Alliance has a clear majority in the Lower House of Parliament, but only 57 members in the 245-member Upper House. The finance ministry said that the foreign equity investment cap of 49% will be applicable to all Indian insurance companies and they shall not allow the aggregate holdings by way of total foreign investment in their equity shares by foreign investors, including portfolio investors, to exceed 49% of their paid-up equity capital. “They also need to ensure that ownership and control shall remain at all times in the hands of resident Indian entities,” it added. The ministry also clarified the foreign equity investment cap of 49% shall also apply to insurance brokers, third-party administrators, surveyors and loss assessors and other insurance intermediaries appointed under the provisions of the IRDA Act, 1999. IRDA is short for Insurance Regulatory and Development Authority.
It said these rules have been prepared based on extensive consultations with the relevant departments and organizations. “These rules incorporate the recent amendments in the law into the standing/prevalent practices being followed hitherto with respect to the treatment of foreign investment in Indian Insurance Companiesunder extant applicable regulations and the FDI policy of Government of India,” the finance ministry statement said.
