Opposition Should Overcome Selective Amnesia Before Pitching for Select Committee on Insurance bill

   

                                                     (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.

(http://www.prsindia.org/uploads/media/Insurance/Official%20amendments%20Insurance%20Laws%20Amendment%20Bill.pdf)

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. 

UPA’s policy paralysis impedes certain private sector defence projects

Entry of several private sector companies in the defence sector has been delayed due to UPA’s failure to clarify the applicability of the existing ban on foreign institutional investment (FII) in this arena. 

The companies whose applications are pending include Tata Advanced Materials Limited (TAPL), Tech Mahindra Limited, Bharat Forge Limited,  Punj Lloyd Industries Limited, Reliance Aerospace Technologies Private Limited (RATPL), Rossell India Limited  Elcome Marine Services Limited and Zen Technologies Ltd.   

The ban has even led to hold-up of the proposals of 100%-owned subsidiaries of Indian blue-chip companies that have small FIIs stake by virtue of their being listed on the stock market. 

Even a fourth-tier subsidiary of a company with non-controlling FII investment has to cool its heels for an industrial licence due the Government’s inability to sort out this policy glitch, according to informed sources. 

Under the existing policy, the Government allows 26% foreign direct investment (FDI) in defence sector companies. FDI above this level requires approval by Cabinet Committee on Security on case to case basis. The policy has put a blanket ban on FIIs’ investment through portfolio investment in defence companies. 

An inconsequential FII stake of 2.15% is adequate for the Government to sit over applications for grant of industrial licence to produce defence gear.   

The case of RATPL smacks of paranoia over FII’s remote control over defence sector. This is akin to Aam Aadmi leader Arvind Kejriwal’s paranoid contention that it is RIL Chairman Mukesh Ambani and not the Prime Minister Dr. Manmohan Singh that runs the Central Government. 

RATPL is 100%-owned subsidiary of Reliance Strategic Investments Limited (RSIL), which in turn, is a wholly owned subsidy (WOS) of Reliance Industrial Investments and Holdings Limited (RIIHL), which is a WOS of Reliance Industries Limited (RIL) in which FIIs hold 17% stake.  

RATPL, which filed its application in May 2012, intends to manufacture aircraft parts and accessories such as pylons of combat aircraft. 

The differential treatment of FDI and FII and maintenance of separate ceilings for these two types of investments have complicated the foreign investment climate. The dichotomy has persisted notwithstanding Finance Minister P. Chidambaram’s advocacy to abolish the distinction between foreign direct investment and foreign institutional investment (FII) since 2006.

Prior to the imposition of ban FII investment in defence sector in August 2013, the policy did not distinguish between FDI and FII in this area. 

This has led to instances where certain companies, already holding approvals for manufacture of defence items, cannot get fresh licences pending amendment of the policy. 

The most bizarre case is that of TAPL in which a non-resident Indian holds 90 shares as a portfolio investment! In January 2012, the company had applied for licence to produce aircraft parts at Bangalore in Karnataka. 

In June 2013, Foreign Investment Promotion Board (FIPB) section in Finance Ministry is understood to have informed TAPL that its application did not involved foreign portfolio investment. The proposal thus does not fall under the purview of FDI policy. TAPL might thus approach Department of Industrial Policy (DIPP) and Promotion, which houses ILC secretariat, for issue of licence on merit.

In its meeting held in October 2013, ILC deferred a decision TAPL’s application and suggested that DIPP and Department of Defence Production should give their comments on applicability of FII ban in this case.  

ILC clubbed TAPL’s case and certain other pending proposals involving FII investment at its last meeting in December 2013. It decided that in the case of TAPL, RATPL and two other cases, DIPP’s foreign collaboration division should clarify the policy interpretation. 

In the cases involving both FII investment and NRI investments, ministries of Finance, Commerce & Industry and Defence should take a joint call.  

Another bizarre instance in point is that of Zen Technologies, which already produced and supplied several simulators to armed forces. In the DIPP record, combined FII & NRI stake in the company is 2.15%. The latest shareholding pattern, however, shows that FIIs have only 0.03% stake in Zen.  

FII investment in certain companies precedes the opening up of defence sector to private investment in 2001.  

Madam Soniaji, please check facts & take back your RTI brag

"We are the Party that is responsible for the historic RTI Act. We pursued this because we believe that ultimately in transparency lies the solution to the problem. The RTI Act is the single most important reason why citizens of our country feel empowered to fight corruption,” stated Congress President Sonia Gandhi at AICC meeting held on 17th January 2014. 
This patently wrong claim has been made on earlier occasions too by various stalwarts of the Congress party and the UPA.  RTI is thus becoming yet another example of modern history being distorted through orchestrated disinformation. The fact is that Congress Party is not the first entity that either ushered in or struggled for the Right to Information (RTI) / Freedom of Information (FOI) legislation.
 The credit on this count should go to all entities across the political spectrum that pitched for this transparency initiative over the last several decades. 

The credit for being prime-mover of transparency legislation should perhaps go to late G. C. Bhattacharya of Democratic Socialist Party, who had moved The Freedom of Information Bill, 1983 in Rajya Sabha way back in December 1983, when Soniaji had not entered politics. 

Moving this private members’ bill, Mr. Bhattacharya had stated: “Sir, I beg to move for leave to introduce a Bill to provide for certain agencies to ensure freedom of having access to and obtaining public information for the citizen and for matters connected therewith.”

On 22nd December 1983, he had also moved another anti-corruption bill, The Civil Servants (Disclosure and Scrutiny of Financial Assets) Bill, 1983. 

We can leave aside the efforts of journalistic fraternity and other public affairs professionals to avoid mix-up with the Freedom of Press. 

The FOI subject has figured in both the houses of Parliament over the years. It is here pertinent to recall a Rajya Sabha question put by Atal Bihari Vajpayee, Ashwani Kumar and late Pramod Mahajan during the Rajiv Gandhi regime.

In a three-part question dated 14 August 1986, the MPs had asked what steps the Government is taking to grant freedom of information in the country. And the stock official reply was that “The information is being collected and will be laid on the Table of the House.”

Another significant milestone in RTI domain was the setting up of an inter-ministerial task force (IMTF) in the late eighties or nineties when the Congress was not in power at the Centre.

Answering a question on IMTF in Rajya Sabha in September 1991, the then Minister of State for Home Affairs, M.M. Jacob, said: “The Inter-Ministerial Task Force which was set up to go into the entire question regarding Right to Information has since submitted its Report.”

He continued: “Its recommendations reflect on the one hand, the need for a more purposeful information dissemination system and on the other a close and comprehensive look on issues relating to security clarification and privacy. In view of the importance and complexity of the subject, formulation of definite views on the issues involved in the matter would necessarily take time.”

It is here pertinent to note that the Congress Government under the Prime Ministership of P.V. Narasimha, did not let the idea of RTI bloom into a law. 

The turning point, however, came in June 1996 when the 13-party United Front coalition unveiled its common minimum programme (CMP). 

As put by CMP, “The Official Secrets Act will be reviewed and amended in tune with the need for openness and transparency in governance. A Bill on Freedom of Information will be introduced within six months to give the people access to information at all levels.”

In January, 1997 the United Front Government set up a Working Group on Right to Information and Transparency to examine the feasibility and need for a full-fledged law. In its report submitted in May 1997, it recommended a draft Freedom of Information Bill. Soon thereafter, the Centre discussed the draft Freedom of Information Act with the States at Chief Ministers’ conference. 

Rest is history. Several States seized the initiative and enacted their own laws. Goa was perhaps the first State to enact RTI law. As put by the NDA Government’s reply to a question raised in Rajya Sabha in December 2000, “The Government of Tamil Nadu, Goa, Rajasthan and Maharashtra have enacted the Right to Information Act”. Of these, only the Goa Right to Information Act, 1997 and Rajasthan Right to Information Act, 2000 contain provisions for imposing penalties on persons who fail to furnish information within the time specified or furnish any false information.”

In all eight States - Maharashtra, Tamil Nadu, Rajasthan, Karnataka, Jammu and Kashmir, Assam, Goa and Madhya Pradesh - had enacted their own RTI laws prior to the UPA Government enacting RTI Act, 2005 in 2005.  UPA time and again fails to mention the fact that it did this by merely repealing the BJP-led NDA’s Freedom of Information Act 2002.  

When RTI wave gained momentum after the emergence of the United Front, the Congress Party did not throw its weight behind RTI. The historic resolutions passed at Congress Plenary Session held in August 1997 thus make no mention about RTI/FOI. 

A lot more can be written about the half-hearted implementation of the RTI Act by the UPA Government. It is better to reserve other facts for another occasion when someone again tries to walk away with a claim that is contrary to the facts.  

                                                ends

Flooding India with improving "Doing Business" reports

          UPA lets ministries vie for studies on improving 'Doing Business in India'

Initiating and flaunting studies on improving business environment is becoming the latest fad in the Indian Government. Different entities in the UPA Government just want to be perceived as making easier 'doing business in India' as their business. Don't expect them to act on countless ideas and suggestions made by numerous official committees on macro, micro and sector-specific reforms. After all, that is not their business.

The latest race to improve business environment started with the Ministry of Corporate Affairs (MCA) releasing the report of the Committee for Reforming the Regulatory Environment for Doing Business in India (DBI) in September 2013. The Committee chaired by ex-Sebi chairman, M. Damodaran, has made suggestions whose sincere implementation can help the country remain in double-digit growth mode in perpetuity.

A few days after the release of Damodaran committee report, Planning Commission also made public a similar report titled ‘Towards an Optimal Business Regulatory Framework in India’. This has been prepared by Implementation Group for 12^th five year plan in association with Booz & Company.

This report has approached the subject in different manner while making valuable recommendations on different issues, some of which such as labour reforms are political untouchable.

As put by the report, “The hallmark of any analysis is the degree to which the recommendations are actually implemented.”

One does not know whether Department of Industrial Policy and Promotion (DIPP) mandarins or its boss, Minister for Commerce and Industry Anand Sharma, spared some time to read these two reports before deciding to commission their own study.

What we know is that DIPP is currently scouting for a consultancy firm via the tendering route for launching a Study on “Improving the Business Environment in India”.

Explaining the rationale for the proposed study, DIPP says: “It is estimated that about 650 million people in the country constituting around 61 percent of the population are in the working age group of 15-59 years. It is estimated that an additional about 200 million Indians will enter the job market in next 15 years. Inclusive growth is possible only if all workers have access to opportunities for employment and entrepreneurship. If India has to grow at 9 to 10% per annum, manufacturing has to grow at 13 to 14% per annum through an enabling policy framework and reduced logistic costs.”

It adds: “Unlocking the job potential and growth of the economy calls for accelerating the pace of investments. At a time when there is an intense competition among counties to attract investments and produce goods and services at competitive costs, the quality of business environment plays a critical role in determining the level as well as pace of investment in the country. As India is ranked poorly in the ease of doing business, it is imperative to identify issues which impact the business environment in the country adversely and suggest policy actions accordingly.”

Indian Establishment should take a leaf out of Asia-Pacific Economic Cooperation (APEC) to coordinate its disjointed and over-lapping efforts at improving business environment in India.

As put by a recent document by APEC, “Improving the region’s business regulatory environment is a focus of APEC, and member economies have pledged to carry out regulatory reforms both collectively and unilaterally.”

It says: “Using 5 Doing Business indicator sets, the action plan targets an APEC-wide aspirational goal of making it 25% cheaper, faster and easier to do business by 2015, with an interim target of 5% improvement by 2011.”

In the run to Lok Sabha polls, can the Prime Minister Dr. Manmohan Singh, salvage his reforms image by making business governance more transparent, rule-based and credible?

Would N. Modi-led new Government set APEC-type goals and timelines, assuming its formation has brightest prospects in the existing political flux and governance mess?