October 05, 2012
India Announces More Economic Reforms
India has unveiled new measures to attract foreign investment in the insurance and pension sectors. The move appears to signal the government’s determination to press ahead with economic reforms despite threats by the political opposition to bring down the ruling coalition.
The contentious bills approved by the Cabinet would open the doors to foreign companies in the pension sector, from which they are now barred. They also raise the limit for ownership by foreign companies in the insurance sector to 49 percent.
Opening the financial sector
The proposals have been pending for nearly a decade due to a lack of political consensus. If passed by parliament, these measures would be a major milestone in opening up India’s tightly controlled financial sector - a long standing demand of foreign investors.
The deputy chairman of India’s Planning Commission, Montek Singh Ahluwalia, denied criticism that the measures will put pensioners' funds at risk.
"It is completely false to say that by raising the foreign investment limit, you are giving away the insurance fund to foreigners," he said. "What you are doing is you are allowing foreigners to build up the capital of the Indian controlled company, which is attracting people to invest."
However, it will not be easy for the government to get parliament’s approval for the landmark bills. The ruling coalition is already under fire for allowing foreign supermarkets to enter India. A crucial political ally has walked out of the coalition, reducing the government to a minority.
Opposition to the latest measures is fierce across the political spectrum.
Prakash Javedkar, a senior leader of the Hindu nationalist Bharatiya Janata Party, says they do not want anything that will risk the assured returns given to pensioners.
However the BJP has left some room for negotiation, saying the insurance and pensions sectors need to be rejuvenated.
Leftist parties have also slammed the proposals.
"These positions are retrograde, reactionary, they are not in the interest of the nation, they are against people, and all political parties must oppose," said D. Raja, a senior leader of the Communist Party of India.
The government says “hard decisions” are needed to attract foreign investment and restore confidence in India’s economy. Growth has slipped to its slowest pace in three years and investors have been wary of entering India, following complaints of widespread corruption and a paralysis in policy-making.
The wave of economic reforms began last month as the government vowed to rescue the faltering economy.