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Reforms II: Actionable or simply intent?

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New Delhi:

The Union Cabinet gave its nod for 49 per cent foreign direct investment in the pension and insurance sectors. Finance Minister P Chidambaram said the government would reach out to the Opposition, including the BJP, to gain support since the measures will need Parliamentary approval.

On Thursday, the Sensex touched the 19,000 mark and the Nifty breached 5800 levels, for the first time since May 2011, in anticipation of the reforms announcement.

“The central government is saying they mean business,” said P Nandagopal, managing director and CEO of IndiaFirst Life, adding, “Foreign investors have been less interested because of low equity participation.”

With the slew of announcements, global investors now appear to have changed their opinion about the UPA government. The surge in inflows into the country, showing up in the strengthening rupee, is helping improve investor sentiment.

But has anything changed on the ground?

Mr Chidambaram, in his earlier term as Finance Minister, had said during the Budget speech on July 8, 2004, “Foreign direct investment (FDI) has the potential to add a competitive edge, especially in the industrial sector. The NCMP declares that FDI will continue to be encouraged and actively sought, particularly in areas of infrastructure, high technology and exports. Three sectors of the economy fully meet this description. They are telecommunications, civil aviation and insurance. There is an urgent need for infusing huge amounts of capital in these sectors. I, therefore, propose to raise the sectoral cap for FDI in telecommunications, from 49 per cent to 74 per cent; in civil aviation from 40 per cent to 49 per cent; and in insurance, from 26 per cent to 49 per cent.”

The announcement to allow higher foreign investment will require the approval of Parliament. And even before the Parliament considers passing the Bill, the Standing Committee will discuss the provisions threadbare and that could take at least six months.

With the BJP, TMC and Left parties opposed to higher foreign investment in the insurance sector, getting the bill through Parliament will be a herculean task. In 2004, it was the Left parties, then a part of the UPA government, which had opposed the move.

Not every insurance company is ready to join the cheer.

“As far as I am concerned, nothing has changed on the ground. It is just an intent that they have stated. I don’t see how this will change reality,” the CEO of a life insurance company said.

The reaction of the markets – up nearly 10 per cent since the beginning of September – will cockle the hearts of the government. It will make it easier for the government to hawk the shares of public sector units and achieve the disinvestment target of Rs 30,000 crore (approximately $5.5 billion). The rupee’s 7 per cent upward ride since early September is making India a more attractive destination.

Over the last few weeks, several other key reform measures have been announced, including a diesel price hike, foreign investment in multi brand retail and aviation and besides a push for selling stake in government companies.

If the 1991 reform by former Prime Minister was one of intent, Thursday’s announcement, specifically about pension and insurance sectors, appears to be a reform limited to words.

Story first published on: October 05, 2012 17:27 (IST)

Tags: Reforms II, FDI

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