New Delhi: Insurance reforms Wednesday cleared a major hurdle after remaining stuck for over six years, with a Parliamentary panel endorsing the proposal to hike foreign investment cap to 49 percent -- a move that can help attract up to Rs 50,000 crore to this funds-starved sector.
After incorporating Congress' demand that the proposed 49 percent limit be a composite cap for all foreign investments including FDI and portfolio funds, the Select Parliamentary Committee approved the Insurance Laws (Amendment) Bill in its report presented in the Rajya Sabha today.
Later in Lok Sabha, Finance Minister Arun Jaitley said a very large investment in this investment-starved sector of insurance is waiting to come in, while industry experts and top government officials pegged the potential size of such funds at up to USD 7-8 billion (about Rs 50,000 crore).
At present, the foreign investment in the insurance sector is capped at 26 percent.
The Bill is now likely to be placed in the Upper House as early as next week, even as leaders from four parties -- Trinamool Congress, CPI-M, JD-U and Samajwadi Party -- gave their dissent notes against the proposed reforms.
The Congress party's support will be crucial as the ruling NDA does not have majority in Rajya Sabha.
The bill, pending since 2008, is seen as a key reform measure by a large number of investors from India and abroad, especially in the US, which has been pressing for increased foreign insurance investment limits for a long time.
There have been speculations that the government might try to get the bill passed in Parliament before US President Barack Obama's visit next month.
"The committee recommends that the composite cap of 49 percent should be inclusive of all forms of foreign direct investment and foreign portfolio investments," the panel said in its report.
"The insurance Bill be passed," the panel said, adding the government may take more measures as recommended by it.
The Rajya Sabha had in August appointed a 15-member Select committee to scrutinise the long pending Insurance Laws (Amendment) Bill, 2008. The Bill was held up for nearly six years on account of political differences.
The panel has recommended suitable amendment to the Securities and Exchange Board of India Act for the inclusion.
It also recommended that penalties on insurance companies be linked to seriousness of offences committed by them. It has suggested mechanism to ensure that there is minimum scope for subjective interpretation.
The Standing Committee on Finance headed by senior BJP leader Yashwant Sinha in 2011 had rejected the proposal to hike FDI to 49 percent in the insurance sector, saying it may not have the desired effect and could expose the economy to global vulnerability.
Meanwhile, the Select Committee unanimously agreed not to bring down the paid-up equity capital in the health insurance sector as compared to the life and general insurance.
The panel suggested that the capital requirements may be retained at the Rs 100-crore level to ensure health insurers have adequate capacity for providing critical services to citizens, and it also pitched for giving top priority to this segment.
"The insurance Bill be passed," the Committee said, adding the government may take more measures as recommended by it.
The committee suggested that the Law Ministry and the insurance regulator IRDA should modify the definition of the term "nominee" in order to remove any ambiguity. The Supreme Court had suggested that there was no need for two categories of nominees -- beneficiary nominee and collector nominee.
It also recommended that adequate protective mechanism be instituted to ensure agents get their commission and the commission structure be determined by IRDA on market conditions.
