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NEW DELHI: The government is set to drop plans for long-pending financial sector reform proposals, including an increase in voting rights for foreign investors in private banks and hike in the foreign investment ceiling for insurance, due to inadequate numbers in Parliament.
As a result, the foreign direct investment ceiling in insurance is expected to be retained at 26%, instead of 49% proposed earlier, while voting right in private banks is likely to be capped at 26%, an increase from existing 10% but short of the original plan to permit foreign investors to vote in line with their shareholding.
Sources said that both the provisions are in sync with the recommendations of the parliamentary standing committee headed by former finance minister Yashwant Sinha. The thinking within the government is that by toeing the panel's line, which is not binding on it, UPA II will be able to at least reduce opposition from its key rival in Parliament, especially when allies like Mamata Banerjee's Trinamool Congress are not on board.
"The political reality is that UPA does not have the numbers and the finance minister is unwilling to take any chances and push through crucial reforms," said a source.
The change in stance would spell bad news for the country's attractiveness to foreign investors, especially at a time when the government's proposal to amend tax laws retrospectively is being cited as reasons for India losing its sheen overseas.
For nearly eight years now, the government has been saying that it is keen on financial sector reforms, including those in banking, insurance and pensions, but had not formally given up on it. By diluting its position on all three legislations the government is actually sending a "shut for business" message to overseas investors, several of whom would now look at other emerging markets, at least for the remaining 25 months of Manmohan Singh government's tenure.
The government is, however, going to point to its plan to introduce nine financial sector legislations over the remaining few weeks to cite its pro-reform credentials. But it is unlikely that foreign investors will buy that argument.
By maintaining the foreign investment cap for insurance at 26%, the government is also going to put pressure on some of the local players, who were hoping to dilute their shareholding once the ceiling is raised to 49%. To circumvent the problem, several companies are expected to get into new hybrid structures to stay within the sectoral ceiling and yet to get more funds from their overseas partner.
http://m.timesofindia.com/PDATOI/articleshow/12525183.cms
As a result, the foreign direct investment ceiling in insurance is expected to be retained at 26%, instead of 49% proposed earlier, while voting right in private banks is likely to be capped at 26%, an increase from existing 10% but short of the original plan to permit foreign investors to vote in line with their shareholding.
Sources said that both the provisions are in sync with the recommendations of the parliamentary standing committee headed by former finance minister Yashwant Sinha. The thinking within the government is that by toeing the panel's line, which is not binding on it, UPA II will be able to at least reduce opposition from its key rival in Parliament, especially when allies like Mamata Banerjee's Trinamool Congress are not on board.
"The political reality is that UPA does not have the numbers and the finance minister is unwilling to take any chances and push through crucial reforms," said a source.
The change in stance would spell bad news for the country's attractiveness to foreign investors, especially at a time when the government's proposal to amend tax laws retrospectively is being cited as reasons for India losing its sheen overseas.
For nearly eight years now, the government has been saying that it is keen on financial sector reforms, including those in banking, insurance and pensions, but had not formally given up on it. By diluting its position on all three legislations the government is actually sending a "shut for business" message to overseas investors, several of whom would now look at other emerging markets, at least for the remaining 25 months of Manmohan Singh government's tenure.
The government is, however, going to point to its plan to introduce nine financial sector legislations over the remaining few weeks to cite its pro-reform credentials. But it is unlikely that foreign investors will buy that argument.
By maintaining the foreign investment cap for insurance at 26%, the government is also going to put pressure on some of the local players, who were hoping to dilute their shareholding once the ceiling is raised to 49%. To circumvent the problem, several companies are expected to get into new hybrid structures to stay within the sectoral ceiling and yet to get more funds from their overseas partner.
http://m.timesofindia.com/PDATOI/articleshow/12525183.cms
