India moves on insurance reform despite opposition

New Delhi, Oct 31: After months of delays and deliberations, India's cabinet has finally approved the tabling of a bill that seeks to raise foreign investment limit in the country's growing insurance business to 49 percent.

The bill, however, may take a while to translate into legislation, as there will be little time in the ensuing parliament session to discuss the matter, Finance Minister P. Chidambaram said.

India currently caps foreign equity limit in insurance at 26 percent.

The business, now worth around USD 20 billion, is expected to grow to around USD 60 billion by 2010, with as much as USD 35 billion coming from rural and semi-urban areas, according to some studies.

Industry, which has been pushing for insurance reform, welcomed the cabinet's decision. "This bill was much awaited and would help in further development of the insurance sector," said the Confederation of Indian Industry (CII).

The chamber hoped that the bill would find quick and easy passage in parliament, reacting to the decision taken at a meeting of the Union cabinet Thursday that was presided over by Prime Minister Manmohan Singh.

According to Chidambaram, another bill has also been approved to help state-owned Life Insurance Corp to double its equity to Rs.1 billion.

These apart, legislative changes will also be made to give more powers to the Insurance Regulatory and Development Authority (IRDA), he said.

"The amendment will remove archaic and redundant provisions in the legislations and incorporate certain provisions to provide the regulator with flexibility to discharge its functions effectively and efficiently," he said.

"These are comprehensive amendments to reflect the current need of the insurance industry," Chidambaram told reporters.

The decision on the insurance bill had been hanging fire as the Left parties, which were supporting the United Progressive Alliance (UPA) government from outside, were vehemently opposed to any move to enhance foreign investment limits in insurance.

Their reactions Friday was on expected lines, with the Communist Party Of India-Marxist saying it continued to oppose the bill and will vote against it in parliament.

"The opposition was based on the understanding that in the interests of India, the hard earned life savings of the Indian people should not be put at the disposal of international finance capital that thrives on the basis of speculation," the party said in a statement.

The Associated Chambers of Commerce and Industry (Assocham) complimented the government for taking the decision despite strong opposition by insurance industry unions.

"The increased limit of foreign investment in insurance will serve the interest of 'aam aadami' (the average citizen) as they would be attracted towards many more insurance schemes with decreased premiums," the chamber said.