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Cabinet allows 49% FDI in insurance and pension sector

NEW DELHI: Signaling the government's intent to continue with reforms to boost economic growth and investor sentiment, the Cabinet on Thursday cleared all amendments to the insurance bill. In a major move the cabinet approved allowing 49% Foreign Direct Investment (FDI) in insurance.

The cabinet also cleared the Pensions Bill and allowedFDI in Pension Funds. It straightaway took the cap in the pension sector to 49 per cent saying it generally follows the insurance sector.

The 49 per cent cap is much higher than the 26 per cent recommended by the Parliamentary Standing Committee on Finance headed by BJP leader Yashwant Sinha. The proposed changes to both the bills will now have to be cleared by both houses of the Parliament before they can come into effect.

Commenting on the development, Bharti-AXA Insurance expressed hope that the changes to theinsurance bill will be approved in the winter-session of the Parliament. Deepak Sood of Future Generali was of the opinion that post the announcement, all foreign insurers would want to hike their stake in he joint venture.

However, Bibek Debroy of Centre for Policy Research told ET Now that he was not sure whether these bills would be passed in Parliament.

Hitting out at the government, Saugata Roy of TMC said that most political parties will find it difficult to support these measures.

Till now, 26 per cent foreign direct investment was allowed in the insurance sector while the pensions business was closed to foreign investment. The government had attempted to push the nine-year-old Pension Fund Regulatory and Development Authority Bill, which seeks to give statutory status to the pension regulator, in June as well, but put it on hold due to the impending presidential elections.

The decision on these bills had been deferred because of opposition from Mamata Banerjee's Trinamool Congress, which has since quit UPA after the government refused to roll back some of last month's decisions, notably the diesel price increase and FDI in multi-brand retail.

The government is believed to be building on the momentum generated by last month's reforms burst and buttress a growing view that the policy paralysis, which defined much of Congress-led UPA's second term in office, is ending.

The government wants to build on the positive sentiment created by its reforms burst while sending out a clear message that it is doing all it can to arrest the deceleration in growth that has been forecast by a stream of forecasters. On Wednesday, the Asian Development Bank cut its growth estimate for this year to 5.6 per cent from 7 per cent earlier.

On Wednesday, the government won crucial support for its proposed plan from the insurance regulator, which said a higher FDI limit in the sector was needed urgently.

"Unless we go for 49 per cent, we will not have the kind of capital required to underpin the growth of insurance industry," Insurance Regulatory and Development Authority ( Irda) Chairman J Hari Narayana said on the sidelines of a CII event in Delhi.
Cabinet allows 49% FDI in insurance and pension sector Reviewed by sambasivan srinivasan on 9:31:00 PM Rating: 5

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