NEW DELHI: The top leadership of the UPA-2 Government is always facing a Hameltian dilemma on the pushing of the financial sector reform bills which, according to them, have the potential to rejuvenate the economy through the inflow of foreign funds. The Insurance Bill proposing 49 per cent FDI in the joint venture insurance companies and allowing 51 per cent FDI in multi brand retail are the two measures on which the Manmohan Singh Government is keen and the action plan is changing according to the political barometer.
Soon after the passing of the President’s address after defeating the amendments both in Lok Sabha and Rajya Sabha, there was a feeling that the UPA-2 should follow up this victory in Rajya Sabha and try for taking up the controversial reform bills at the fag end of the session for getting Parliament approval. The idea was that the SP and the BSP should be persuaded to fall in line and once they agree to support the Bills, there is no problem in passing the Bills in both the houses during the session. The Insurance Bill has to be passed but for FDI in multi brand retail, it will require consultations with the state governments apart from the political parties. On this issue both, the TMC and the SP are opposed.
The new Uttar Pradesh chief Minister Akhilesh Yadav has not yet officially made known his views on the Insurance Bill, especially the hiking of FDI to 49 per cent from the existing 26 per cent, but he has come out openly against the induction of FDI in multi brand retail. Mr. Yadav is supposed to have a meeting with the Prime Minister next week to discuss about UP’s problems and the need for special funds. It is quite likely that the Prime Minister will like to know the thinking of Mr. Yadav on the reforms bills as also the FDI in multi brand retail. No major decision on reforms can be taken now by the centre without taking SP and BSP in the loop as the TMC with its 19 members in the Lok Sabha is steadfast in opposing the major reforms policies which the finance ministry has proposed.
Presidential elections in July this year have posed a major challenge for the Congress for pushing its Party candidate with the support of its allies and in that context, keeping the TMC in good humour is of big importance as TMC has a big voting strength in the Presidential elections. Similar is the situation with the Samajwadi Party which is now in a position to dictate terms to the UPA-2 in view of its big increase in strength after the recent assembly elections in Uttar Pradesh. The reforms bills have to be presented and finetuned after discussions with the TMC and the SP and in the process, the bills might lose its pro-reform thrust in terms of facilitating foreign direct investment in the economy.
The Finance Ministry is still in two minds on pushing the proposed Insurance Laws (Amendment) Bill with the provision of hiking the foreign direct investment ceiling to 49 per cent from the existing 26 per cent. Finance Minister Mr. Pranab Mukherjee in his budget speech in Parliament on March 16 has mentioned of this Bill in the list of the financial sector reforms bills to be taken up during the current session. The Bill has been sent to the Parliament by the Standing Committee on Finance with its recommendations, the major part of which is retaining the FDI ceiling at 26 per cent as against the provision in the draft Bill of hiking it to 49 per cent. The Finance Ministry has the power to overrule the SCF recommendations and place the Bill for discussions as per its own draft and pass it if there is majority support.
The Government has majority support in both Lok Sabha and Rajya Sabha even without Trinamool Congress if the Samajwadi Party and the BSP extend support as they did during the first part of the budget session and saved the UPA-2 Government. Prime Minister and the Finance Minister are still insistent on taking the risk of keeping the 49 per cent provision and make efforts to push it through SP and BSP support. But there is reluctance on the part of the Congress President Sonia Gandhi to push through such financial sector reform at this time by antagonizing Mamata Banerjee. Sonia supports the Insurance FDI hike in principle but thinks that this should not be a big priority at the moment when politically, the Congress is fighting against many odds.
Rahul Gandhi in fact is taking no interest in the fate of the reforms bills these days. His main concern is political and he has told the Finance Minister that his priority is 2014 Lok Sabha elections and how to rejuvenate the Congress in Uttar Pradesh and he has no time to spend on other issues. As a result, the Finance Minister is not getting enough political support from the top leadership to push the Insurance Reforms Bill in its official form.
Sources say that they are ready with both alternatives. If the FM can organize the support of SP and BSP and persuade the top political leadership to agree to go ahead without Mamata’s support, the Bill can still be moved for discussion in Parliament after the recess in the last week of April. Here the catch is that taking into account the need for Trinamool support in the Presidential elections in July this year, even Mr. Mukherjee is hesitating to antagonise Mamata on this FDI hike issue. In that case, the Bill will be moved incorporating the recommendation of the SCF on retaining the present FDI limit in the insurance industry. But the sources say that the FM has the option to take the Insurance Bill in the monsoon session after the Presidential elections and if the political situation improves for the UPA-2, he can move the Bill with FDI hike and get it passed. The final decision depends on the Finance Minister.
However, seasoned industry sources have got the hint that the Government may try to keep safe without generating any further political controversy and move the Bill with the present FDI ceiling retaining. In that case, many insurance companies, both Indian and foreign will have to change their business plans including IPO plans. The impact will vary from company to company but the most affected will be the group of companies which acquired licenses after 2005. This category will undergo mergers, acquisitions and also some consolidation. The category of companies having no distribution network, will also be hit as they looked for foreign funds to expand and market properly. They will need lot of funds on their own in the absence of foreign funds. The large companies like SBI Life, ICICI Prudential, HDFC might give up their IPO plans but they will have enough financial muscle to increase their respective share in the insurance market. (IPA Service)