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In a slew of big decisions, the Cabinet today cleared two important financial sector reform Bills, aimed at increasing foreign direct investment (FDI) in the insurance sector to 49 per cent from the current 26 per cent and opening of the pension sector to FDI in line with the insurance sector. It also approved the Companies Bill, 2011, making spending on corporate social responsibility a mandatory provision for companies above a threshold.
The Cabinet also gave the green signal to amendments in the Competition Act, bringing all voluntary mergers and acquisitions in all sectors under the purview of the Competition Commission of India (CCI). Specific cases such as the merger of a failed bank with another in the public interest will, however, be exempted from CCI purview and be in accordance with Reserve Bank of India directions.
The Cabinet also gave its nod to the Forward Contracts Regulation (Amendment) Bill to give more teeth to the Forward Markets Commission and introduce more products in commodity futures.
To give a boost to the infrastructure sector, the Cabinet committee on infrastructure approved a tripartite model agreement between lenders, the project authority and the concessionaire to operationalise infrastructure debt funds.
The Cabinet also cleared a proposal to declare the airports at Lucknow, Varanasai, Tiruchirapalli, Mangalore and Coimbatore as international airports.
It also approved the document for the 12th Plan, which aims at an average annual growth rate of 8.2 per cent during 2012-13 to 2016-17. The Plan document will be considered by the National Development Council later this month.
The proposed National Investment Board was on the agenda but did not come up, as the Cabinet note on that was not circulated to all departments and ministries. The proposal to expeditiously clear big infrastructure projects is likely to be taken up in the next meeting.
The Cabinet cleared a 49 per cent FDI cap in private insurance companies. The pension sector will have either a 49 per cent FDI cap (in case the insurance Bill is cleared by Parliament) or 26 per cent.
Even as the Cabinet approved a higher FDI cap in the insurance sector through amendments in the Insurance Laws (Amendment) Bill and the Pension Fund Regulatory and Development Authority (PFRDA) Bill, the government may not find it easy to pass these pieces of legislation in Parliament.
That is because the main Opposition, Bharatiya Janata Party (BJP), opposed an increase in the FDI limit in the insurance sector and insisted the Bill be again brought to Parliament's standing committee on finance, headed by its senior leader Yashwant Sinha.
However, Finance Minister P Chidambaram exuded confidence the Opposition would be persuaded to get the Bills passed.
"I have already included the insurance Bill in the list handed by me to two leaders of the Opposition. I will ask them to consult their colleagues and support the Bill. We will continue to engage all political parties in Parliament to get it passed," Chidambaram told a press briefing after the Cabinet meeting.
He said he also took note of senior BJP leader L K Advani's statement that "they" were opposed to FDI in retail but in other sectors "they" supported it.
However, a senior BJP leader said the party was going to oppose the amendments, as those were against the recommendations of Parliament's standing committee.
The committee had recommended retaining the FDI cap in the insurance sector at 26 per cent.
PFRDA Chairman Yogesh Agarwal said he would be happy with 26 per cent FDI in the pension sector. However, if it was to become 49 per cent in line with the insurance sector, he would welcome the move more, he said.
He said a lot of foreign interest was seen from the US and Europe in the pension sector in India.
Besides the opening of the pension sector, the PFRDA Bill gives statutory powers to the interim regulator, constituted through an executive order in 2003.
Rajesh Sud, CEO & Managing Director, Max Life Insurance, said, "The Cabinet's approval to allow FDI up to 49 per cent in the insurance sector will bring in domain capital to the industry. The insurance Bill has several other important elements which, once approved in Parliament, will have a long-term impact on the development of the sector."
P Nandagopal, MD & CEO, IndiaFirst Life Insurance, explained that more capital was always welcome and the industry could leverage both financial and technical capital through the FDI route.
FDI reform measures cleared by the Cabinet last month were all executive decisions. However, major reform proposals cleared today are Bills, which will require Opposition help to pass.