In a move that could dent investor sentiment, the parliamentary standing committee on finance is set to reject government's move to further open up the insurance sector. The Insurance Amendment Bill, tabled in Parliament, had proposed to raise the foreign investment limit in the key financial sector to 49% from 26% fixed a decade ago. A majority of committee members felt that a higher foreign investment ceiling could affect domestic players.
The panel, headed by senior BJP leader which the government had been trying to push since 2008. During his stint as finance minister, Sinha had piloted the bill that opened the insurance sector to private players and allowed 26% foreign investment.
In its previous term, the government had faced stiff resistance from the Left that was propping up UPA-1. Now, the bill seems to have run into a roadblock from a resurgent Opposition. Though the government is not bound to accept the standing committee's recommendations, the suggestions will make its task daunting and force it to cut deals with small groups in the Lok Sabha to muster support for the passage of the bill. The task will be tougher in the upper House where it is outnumbered by the Opposition. The government could hardly conduct any business in the recently-concluded winter session of Parliament due to an Opposition blockade over three major "scams"—Commonwealth Games, Adarsh housing society and 2G spectrum.
While 49% foreign investment will still mean that firms will remain in Indian hands, non-UPA MPs felt that it would not be beneficial for the domestic sector. They were also unconvinced that the quantum of domestic capital flowing into the sector was insufficient for its growth and development. UPA-1 had introduced the Insurance Laws (Amendment) Bill, 2008, in Rajya Sabha and the Life Insurance Corporation (Amendment) Bill, 2008, in Lok Sabha. The Insurance Bill is seen as an omnibus legislation to change three Acts: Insurance Act, 1938; Regulatory and Development Act.
A delay in increase in the foreign investment ceiling from the present level will also force life insurance firms to list. Under the present dispensation, players such as ICICI Prudential and HDFC Standard Life, which have completed 10 years of operations, are required to list in a way that the domestic partners sheds stake in favour of the public.
Several companies are eagerly awaiting the passage of the bill to postpone listing. In addition, there are some players such as Reliance Life that are awaiting clarity on the guidelines before going for sale of stake to a strategic partner.