Cabinet likely to take up PFRDA Bill today

By : Vrishti Beniwal
Last Updated: Wed, Jun 06, 2012 19:50 hrs

For now, the government seems determined to carry out financial sector reforms, at least those on the Pension Fund Regulatory and Development Authority (PFRDA) Bill and the insurance Bill. The Cabinet, which had deferred the PFRDA Bill in December 2011, is likely to take it up tomorrow.

Officials said the finance ministry had written to the Cabinet Secretariat, asking it to consider the insurance Bill again, this time with a fresh proposal to raise the cap on foreign direct investment (FDI) from 26 per cent to 49 per cent. However, no timeframe for this has been specified so far. Earlier, the Cabinet had deferred even a diluted version of the Insurance Laws (Amendment) Bill, which sought to retain the FDI cap at 26 per cent.

The developments are important, as financial sector reforms are considered the next driver of India’s economic growth, which slipped to a nine-year low of 6.5 per cent in 2011-12.

The provisions of the draft PFRDA Bill, which seeks to give statutory powers to the interim pension regulator, are the same as those on the version the Cabinet had considered earlier. However, this time, the government may get some comfort from the Bharatiya Janata Party (BJP), which had sent a strong signal it would support the Bill in Parliament. Even in December, the BJP had indicated support for the Bill. However, it had insisted the finance ministry and the government respect a parliamentary standing committee's decision to specify an FDI cap in the legislation. In 2011, the Bill had proposed this power for the executive.

The PFRDA Bill to be taken up by the Cabinet tomorrow would retain the FDI cap at 26 per cent. This was recommended by the standing committee, headed by former finance minister Yashwant Sinha, and the provision has been accepted by the government.

However, there is a catch. The Bill is likely to link the FDI cap in the pension sector with that in the insurance sector. It states an FDI cap of 26 per cent and one in line with the insurance sector should be considered, and the higher of the two should be allowed. This means in the future, if the limit on FDI in the insurance sector is raised, it would also result in a similar rise in the FDI cap in the pension sector.

In a recent Cabinet meeting, the insurance Bill, with the current FDI cap of 26 per cent, was deferred. Officials said Finance Minister Pranab Mukherjee wanted the Bill to raise the FDI cap to 49 per cent.

In December, the Trinamool Congress had opposed the PFRDA Bill. It had asked the government to guarantee minimum returns to those who invested in pension schemes. The finance ministry had said the Bill was likely to give an option to subscribers to invest their subscription in government securities, considered safer than equity markets. However, even government securities might be unable to provide assured minimum returns, as coupon rates on these are linked to prevailing interest rates, officials said.

The concern of the Trinamool Congress that people’s “hard earned money should not be subject to the vagaries of the market” is, therefore, only partly addressed. However, the government is deriving comfort from the fact that with the BJP’s support, the Parliament would pass the Bill.

The PFRDA Bill is one of the three important financial sector reform Bills, the insurance Bill and the banking reforms Bill being the others. The banking Bill, which seeks to raise voting rights of shareholders in private sector banks from 10 per cent to 26 per cent, was approved by the Cabinet, though it is yet to be tabled in Parliament.

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