2005: Govt fails to hike FDI in insurance, push pension reform / Dec 27, 2005 / Manorama Online
From Indiapensions
2005: Govt fails to hike FDI in insurance, push pension reform
New Delhi: Faced with stiff opposition from Left parties, the UPA government failed to hike FDI cap in insurance and push forward pension reforms in 2005, but it did not prevent private players from increasing their market share and state-owned LIC going in for global expansion.
Year 2005 taught a cruel lesson to the Indian populace for not having adequate insurance covers against vagaries of nature, as it was seen after devastating Tsunami, flash floods in western India and the earthquake in Jammu & Kashmir.
Though state-owned insurers rose to the occasion in settling claims that came after the devastation, these events once again revealed the low insurance penetration in India and the need for further reforms. Cut-throat competition and need for additional capital infusion forced the insurance industry and regulator IRDA to pitch in for hike in FDI cap from 26 to 49 per cent in the sector.
Though, it was promised by Finance Minister P. Chidambaram in his Budget of 2004, that the government could not muster up support from Left parties to amend the IRDA Act for raising the FDI cap and neither could it come up with a comprehensive bill to make the Indian insurance laws in-sync with global standards.
Voicing the concerns of foreign investors, US Ambassador David Mulford charged the government for "breach of faith" to foreign investors by not hiking FDI cap in insurance from 26 to 49 per cent. Left parties also played spoilsport to UPA's efforts at pushing forward pension reforms through the PFRDA bill that mandates 26 per cent FDI for private pension fund managers and promises higher returns for elders. While domestic financial majors like SBI, LIC and UTI AMC are eyeing entry into the long-term savings business, foreign financial powerhouses like HSBC, Prudential, Aviva, Standard Life, ING, New York Life, Principal Financial, Merrill Lynch and Templeton are also making a bee-line. PFRDA has an open mind in allowing as many players who meet a set of stringent criteria, its chairman D. Swarup said after assuming office.
Despite the preparedness from the regulator and private players, PFRDA Bill failed to get Parliamentary nod this year. When the bill was introduced in Parliament early this fiscal, it was referred to the Standing Committee on Finance, which proposed some modification including a risk-free scheme that would invest subscribers' money in government papers. The revised bill could not be taken up in Parliament in winter session much to the dismay of the Centre and states who are eagerly waiting to switch over to a defined contribution system from the present defined benefit pension system to reduce their pension burden now at over 1 per cent of GDP.
As many as 15 states have enrolled in the new pension system which could invest upto 80 per cent in equity and promise a higher return over a long term. Both insurance and pension reforms are essential for the country to increase its savings and channelise long term funds to infrastructure sector, which in turn would help the economy to grow faster.
