House panel defers adopting report on FDI in insurance

30-Jun-2011
Source : CNBC TV18

The parliamentary panel has deferred its decision on the government’s proposal to hike the foreign direct investment limit in the insurance sector to 49% from the existing 26%.
One can read the importance of this bit of news in the context of recent moves in the insurance space, specifically Bharti deciding to exit certain segments of the insurance play that it has and Reliance Industries wanting in.
The key thing really is that the Insurance Amendment Bill 2010 has proposed a hike in the FDI limit from 26% to 49%. This is a proposal that has been there for several years now.
The standing committee of finance in parliament which is headed by former finance minister and BJP leader Yashwant Sinha has prepared a detailed draft report of 250 odd pages which conclusively and effectively rejects a call for hiking the FDI limit. The insurance FDI is governed by in act of parliament in contrast to other sectors where rate has been done through executive decisions and that report was to be adopted formally today. However that could not happen, primarily because Mr Yashwant Sinha, I pick up from sources, was not able remain present at the meeting and therefore this is a deferral that may eventually be sorted out as and when the next date is fixed. For now the formal adoption of this report has been deferred.
The big picture really is that even the finance ministry does not expect this standing committee or the MPs to support this move in hiking FDI from 26% to 49% and in the long-term this is a big message for the government as well as for insurance companies and foreign investors that as far as the Indian parliament is concerned a hike in FDI and insurance is not going to happen for the foreseeable future.