(Image Courtesy: IndiaFirst Life Insurance)
The brewing political ruckus over Insurance Laws (Amendment) Bill 2008 has blurred the distinction between the fact and fiction.
News stories indicate that nine political parties including Congress and its UPA allies have given a notice to the Rajya Sabha Chairman demanding that the Bill be referred to a Select Committee for scrutiny.
The Finance Minister Arun Jaitley is likely to introduce the revised Bill in Rajya Sabha on 4th August for which a four-hour discussion has been specified by the House’s Business Advisory Committee. He is expected to take the fizz out of the Opposition cacophony during the discussion as the new Government is on a strong footing as for as the facts and the domestic interests are concerned.
The Opposition parties have contended that 97 official amendments to the Insurance Laws (Amendment) Bill 2008 (which is to be enacted as Insurance Laws (Amendment) Act 2014) have changed the character of the proposed law. It thus required fresh scrutiny and this should be done by a Select Committee.
The fact is that 88 official amendments were approved by the Cabinet during the UPA regime taking into account the recommendations and observations of Parliamentary Standing Committee (PSC) on Finance. Several changes are of “drafting nature”, which only implies an attempt to improve the text of the Bill.
The UPA and its outside allies should first overcome selective amnesia instead of demanding that the Bill be referred to the Select Committee. The Opposition should recall a release issued by Press Information Bureau on 4th October 2012, announcing the Cabinet decision to approve official amendments to the Bill.
The release stated “Based on the recommendations of the Standing Committee on Finance, the Cabinet has approved amendments containing the following : The foreign equity cap is proposed to be kept at 49 per cent as provided in the Insurance Laws (Amendment) Bill, 2008 as against the 26 percent. This is done in order to meet the growing capital requirement of insurance companies.”
Thus the decision to hike insurance FDI ceiling to 49% was taken by UPA and reiterated by it in spite of PSC’s recommendation to keep the cap at 26%.
Later, the UPA Government had sent notice to Rajya Sabha on several occasions to introduce the Bill with 88 official amendments, which are available in the public domain.
The last such notice was sent on 30th January 2014. The revised Bill, however, never, came up for introduction and discussion in the House.
When Modi Government came to power, it mulled over the need to strike a balance between UPA Government’s resolve for 49% cap and PSC’s recommendation for retention of 26% ceiling, according to informed sources.
The Finance Ministry discussed this issue with General Insurance Council, Life Insurance Council and representatives of insurance companies at a meeting held on 31st May 2014.
According to informed sources, “it was unequivocally suggested by participants that the sector FDI limit needs to be raised to 49% from 26%, ideally without qualification. However, if felt necessary, the Government could impose safeguards like restriction of voting rights of foreign investors to 26%, requirement of the CEO/majority directors being Indian, etc. for a limited duration, subject to an early review.”
Thus, the strategy to balance the interest of foreign investors and insurance industry’s capital requirements, on the one hand, and the domestic concerns, on the other, emerged from within the industry.
The NDA Government has accordingly decided to water down UPA’s unqualified FDI stance with safeguards as mooted by the industry. This should have actually appeased the Left parties, one of whose spokesperson has dubbed the revised bill as Modi Government’s “welcome gift to John Kerry, US Secretary of State.”
The root cause of the row is the Modi Government's failure to put facts in public domain at appropriate time. It is more tight-fisted than the UPA Government if the yardstick of putting information in public domain is concerned. This flaw led certain mainstream dailies into distorted reporting of the Cabinet decision to approve official amendments to the Bill and their placement in the Rajya Sabha. The news reports said Cabinet has approved increase in FDI in insurance companies from 26% to 49%. The fact is that this is already provided for in the the original 2008 Bill. The only significant news of the NDA Cabinet meeting should have been that it has decided to subject the proposed hike to stringent safeguards.
Modi Government has thus substituted the provision of (7A)(b) of the Bill with the ones that provides for the FDI safeguards.
The original clause of the 2008 Bill reads as: “in which the aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed forty-nine per cent paid-up equity capital of such Indian insurance company.”
In the revised bill, this paragraph would be substituted with another one that reads as: “In which the aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed forty-nine percent paid equity capital of such insurance company, provided that the voting rights of such foreign shareholders shall not exceed twenty-six percent in the aggregate and the CEO of the said Indian insurance company, to be appointed by its Indian shareholders subject to approval of the competent authority, as may be prescribed, and the majority of the company’s directors, shall be Indian nationals.”
Another important fact is that some official amendments envisage retention of the existing Sections of the Insurance Act that were proposed to changed under the original 2008 bill.
A case in point is the official amendment for omission of clause 4 of the original bill. The revised clause reads as: “the existing section of the Act will be retained.”
An amendment proposed in the original bill, for instance, would have enabled foreign insurers to operate in Special Economic Zones (SEZs) without being subject to regulatory control of Insurance Regulatory and Development Authority (IRDA).
PSC, which recommended omission of Clause 4 and related clauses from the original bill, had pointed out that IRDA and domestic insurance industry had voiced grave concern over the proposed freedom to be granted to unregistered foreign insurers in SEZs. PSC actually did a meticulous job, leaving hardly any scope for setting up of Select Committee.
