Cabinet OKs rise in FDI cap in insurance, pension to 49%

Govt Reaches Out To BJP To Get Key Bills Through

New Delhi: The government on Thursday reached out to the BJP seeking its support for the legislation to increase the foreign investment cap in insurance to 49% and open up the pension business with the FDI ceiling linked to the insurance sector. This sets the stage for negotiations with the main opposition party and raises hopes that the wait for financial sector reforms may finally be over. 
    "Legislation-making in Parliament is a process of discussion and negotiations. 
Many bills have been passed after discussion with the opposition, especially the principal opposition party," finance minister and the spearhead of the reforms rush P Chidambaram said just after the Cabinet cleared the two long-pending financial sector legislations. 
    In what is being dubbed as the second wave of reforms, the government on Thursday approved 21 proposals, including legislations to deepen commodities trading to help farmers hedge their risk, a modern set of rules for the corporate sector and a proposal to let the Competition Commission vet all corporate mergers and acquisitions to prevent companies from controlling market mechanics. 
    The FM invoked the BJP's claim to be pro-reforms and recalled Nitin Gadkari's remark that they were not opposed to FDI per se. His overture sets the stage for intense give-and-take over the quantum of FDI in pension and insurance sectors, and may escalate the churn within the BJP. 
MORE REFORMS AHOY! FDI limit proposed to be hiked to 49% in insurance, and a similar figure for pension funds. But this requires Parliament's nod. The chances are 50-50 
INSURANCE 
More choice for medical policies as capital required for insurance firms halved to 50 crore Insurers to be liable for acts of agents to curb mis-selling Tougher for companies to cancel policies Regulator to check wasteful expenses by firms so that policyholders get better returns No rebates or refunds–a common practice used by agents to share commission 
PENSION 
Guaranteed returns allowed. More choices of pension products for consumers
New rules for regulator to protect consumers, bring confidence in market 
National Pension Scheme, the lowest-cost retirement plan, to get a leg up BJP may not mimic Mamata's stand 
    The BJP on Thursday opposed the proposals but with the caveat that it would finesse its stand after seeing the fine print. In fact, an influential section in the party is chary of being seen as anti-reforms for the fear of losing the middle class mindspace, and government's pitch on Thursday can intensify the debate. 
    The BJP has in the past supported pension reforms, with the parliamentary standing committee headed by former finance minister Yashwant Sinha suggesting that the foreign investment ceiling for the insurance sector be retained at 26%. 
    The government has, however, chosen to go ahead with the proposal to allow up to 49% overseas investment, and also align the limit for pensions with insurance: thus breaching the threshold unanimously set by the Sinha-led committee. 
    However, the BJP, which has been keen to regain the middle class constituency it lost to the Congress in 2004, is unlikely to mimic the stand of Trinamool boss Mamata Banerjee. Mamata, who as a UPA partner consistently opposed reforms in insurance and pension sectors, as well as the Forward Contracts Regulation Act dealing with commodities trading, has now threatened to bring a notrust vote on the issue. 
    The government's reforms gambit may succeed if it manages to persuade the SP and BSP to play along once again. On Thursday, SP kept the government's hopes alive. Its leader Mohan Singh recalled his party's consistent opposition to FDI, but without ruling out a deviation. 
    BSP is likely to make its stand known on October 9, though there are few signs to suggest that it is ready to injure the government yet. 
    With the bills unlikely to be introduced at least for the next four-five weeks, Cabinet's nod for pension and insurance reforms as well as the Forward Contracts Regulation Act was perhaps designed to pump up sentiments, spurring the already-bullish stock market. The BSE sensex scaled the 19,000 mark and closed at a 15-month high.

Legislation-making in Parliament... is a process of discussion and negotiations. Many Bills have been passed after discussion with the opposition, especially the principal opposition party P CHIDAMBARAM | FINANCE MINISTER